December 14, 2010, 11:51 AM
Does China Face a ‘Peak Coal’ Threat?

China’s ravenous appetite for energy puts the country at risk of reaching a point of “peak coal,” when demand for coal will outstrip domestic production capacity, a growing number of experts believe.

China now consumes approximately 47 percent of coal produced globally but by most estimates has just 14 percent of global coal reserves. Meanwhile, demand has risen by about 10 percent per year for the last decade, putting the country on an “unsustainable” path, according to a recent report by C.L.S.A. Asia-Pacific Markets, a Hong Kong-based brokerage firm.

Coal might be abundant globally, but if China cannot substantially raise its domestic production, increasing imports enough to meet demand may be hard to accomplish in the short-term, putting the country in a potential supply bind.

“I think China is the vulnerable player here — they don’t really have a lot of options,” said David Fridley, a staff scientist at the Lawrence Berkeley National Laboratory and deputy leader of the laboratory’s China Energy Group.

Evidence that China may be nearing an ultimate limit on production can be seen in rapidly growing imports and a recent proposal by a top energy official that the country cap coal production at around 3.6 billion tons per year beginning in 2011. China is on pace to produce nearly 3.4 billion tons of coal domestically in 2010, according to a recent Reuters analysis, and will import about 150 million tons this year.

Chinese officials suggest that the coal production cap is intended to prolong domestic supplies. But some analysts believe that the cap may have more to do with the country’s inability to substantially raise production, most likely because of problems with transportation. Already, a significant amount of coal transport has shifted from China’s overburdened rail lines to its crowded roads, with coal-laden trucks blamed for snarling roads, as with a two-week-long traffic jam that clogged the national highway between Beijing and Zhangjiakou this summer.

Domestic Chinese supplies are estimated at about 110 billion tons, enough for about 30 years consumption at the 3.6 billion ton level. Yet continued rapid economic growth will push demand far higher, leading some to suspect that China is preparing to turn toward imports to meet further demand growth.

As our colleague Elisabeth Rosenthal reported last month, rising Chinese demand has countries like Canada, Australia, Indonesia, Colombia and South Africa rapidly ramping up their coal exports. The sudden opening of the Chinese market has put some countries, like Australia, in the unusual position of increasing coal imports while simultaneously pursuing domestic goals of reducing carbon emissions from fossil fuels to address climate change.

In Australia, plans to rapidly scale up coal exports have already run into political opposition, a prospect that would probably await attempts to develop major new terminals on the west coasts of the United States and Canada to export plentiful North American coal.

“I think the West Coast in general would be a very difficult place to come in and put in a massive coal-export terminus,” Dr. Fridley said.

At the same time, China is expected to face increasing competition from India and other developing nations in Asia for coal imports from abroad, potentially setting the stage for a rapid rise in coal prices. The result would be felt across the global economy, some experts say.

“China’s insatiable hunger for more coal will drive up coal prices everywhere,” Richard Heinberg, an author and senior fellow at the Post-Carbon Institute in Santa Rosa, Calif., wrote in a recent essay. “China can’t keep up coal-powered industrial expansion for much longer, nor can the global economy accelerate without the engine of China.”