Economics of the International Coal Trade (eBook)

Foreword 1 5
Foreword 2 8
Acknowledgements 11
Contents 12
List of Figures 16
List of Tables 18
Abbreviations and Definitions 19
1 Executive Summary 22
1.1 Sources of Coal Synopsis of Coals Significance as a Resource 22
1.1.1 Coal Basics 23
1.1.2 Production, Reserves, and Resources 23
1.1.3 Competitive Supply 24
1.1.4 Coal Mining 24
1.1.5 Environmental Issues and Safety of Coal Production 25
1.2 Use of Coal Power Generation and More 25
1.2.1 Global Demand 25
1.2.2 Power Markets 26
1.2.3 Power Generation 26
1.2.4 Environment Issues Associated with the Use of Coal 27
1.2.5 Comparative Analysis of Coal Substitutes 27
1.3 Global Steam Coal Market and Supply Curve 29
1.3.1 Geopolitical and Policy Environment 29
1.3.2 Global Seaborne Steam Coal Trade Market 30
1.3.3 Pricing and Capacity Utilization 31
1.3.4 Variable Cost Analysis -- Real Global FOB Costs 31
1.3.5 WorldCoal: GAMS-Programmed Coal Market Model Including Sea Freight 32
1.4 Industrial Structure of Supply Market: Game Theory and Cournot Competition 33
1.5 Conclusions, Implications, and the Future of Coal 34
1.5.1 Future Steam Coal Price Trends 34
1.5.2 Future Sources of Energy 35
2 Introduction 38
2.1 Prelude 38
2.2 Methodology 42
2.3 Market Definition 44
3 Sources of Coal Review of Coal as a Resource 46
3.1 The Fundamentals of Energy Sources and Fossil Fuels 46
3.2 Process of Coal Formation 48
3.3 Classification and Key Characteristics of Coal 49
3.3.1 Calorific Value 51
3.3.2 Ballast: Moisture and Ash Content 52
3.3.2.1 Moisture 52
3.3.2.2 Ash 53
3.3.2.3 Ash Fusion Temperatures (AFT) 54
3.3.3 Volatile Matter 55
3.3.4 Fixed Carbon Content 56
3.3.5 Sulfur Content 56
3.3.6 Size, Grindability, Nitrogen, Chlorine, and Fluorine 58
3.4 Regional Analysis of World Coal Production, Reserves, and Resources 58
3.4.1 World Resources, Reserves, and Production Analysis 59
3.4.2 Australia 63
3.4.2.1 Australia's Production and Exports 63
3.4.2.2 Australia's Coal Quality 64
3.4.2.3 Australia's Infrastructure 64
3.4.2.4 Australian Costs 65
3.4.3 Indonesia 65
3.4.3.1 Indonesia's Production and Exports 66
3.4.3.2 Indonesia's Coal Quality 67
3.4.3.3 Indonesia's Infrastructure 68
3.4.3.4 Indonesia's Costs 68
3.4.4 South Africa 69
3.4.4.1 South Africa's Production and Exports 70
3.4.4.2 South Africa's Coal Quality 71
3.4.4.3 South Africa's Infrastructure 71
3.4.4.4 South Africa's Costs 72
3.4.5 Russia 72
3.4.5.1 Russia's Production and Exports 73
3.4.5.2 Russia's Coal Quality 74
3.4.5.3 Russia's Infrastructure 75
3.4.5.4 Russia's Costs 75
3.4.6 China 75
3.4.6.1 Basic Background 76
3.4.6.2 China and the World Coal Market 76
3.4.7 Colombia and Venezuela 77
3.4.8 USA, Vietnam, Poland, and Canada 78
3.4.8.1 United States 78
3.4.8.2 Vietnam 79
3.4.8.3 Poland 79
3.4.8.4 Canada 80
3.5 Competitive Conditions of Coal Supply 80
3.6 Coal Mining/Production 82
3.6.1 Optimal Use of Resources 82
3.6.2 Coal Mining Methods: Surface and Underground Mining 83
3.6.2.1 Underground Mining 83
3.6.2.2 Surface Mining 84
3.6.3 Coal Mining Investments and Variable Operational Costs 86
3.6.3.1 Investments in Coal Mining 86
3.6.3.2 Coal Mining Operating Costs 88
3.6.4 Coal Amelioration and Coal Washing 89
3.6.5 Environmental and Safety Issues Associated with Coal Production 91
3.6.5.1 The Environment and Coal Production 91
3.6.5.2 Safety in Coal Production 92
4 Use of Coal Power Generation and More 94
4.1 Introduction 94
4.2 Steam Coal and Its Role in Power Generation 95
4.2.1 Steam Coal Demand by Region 96
4.2.2 The World's Most Important Coal-Importing Countries 98
4.2.2.1 Japan 99
4.2.2.2 South Korea 99
4.2.2.3 Taiwan 100
4.2.2.4 Europe: United Kingdom and Germany 100
4.2.2.5 China and India 101
4.3 Introduction to Power Markets 102
4.3.1 Matching Power Supply and Demand 103
4.3.2 Power Pricing and Coal 104
4.3.3 Competitive Conditions of Power Generation 106
4.4 Coal-Fired Power Plant Technologies 107
4.4.1 Power Plants and Coal Use 107
4.4.1.1 Coal Preparation 107
4.4.1.2 Coal Burning 108
4.4.2 The Future of Power Plant Technology: Increased Efficiency, Reduced CO 2 , and CCS 109
4.4.2.1 Flue-Gas Scrubbing in Conventional Power Plants 110
4.4.2.2 Oxyfuel Process 110
4.4.2.3 Integrated Gasification Combined Cycle (IGCC) Process 110
4.5 Environmental Issues Associated with Coal Use 111
4.5.1 How Much CO 2 Stems from Coal? 112
4.5.2 Nitrogen and Sulfur 113
4.6 Comparative Analysis of Coal Substitutes for Power Generation 114
4.6.1 Natural Gas 115
4.6.1.1 Gas Transport Via Pipelines 116
4.6.1.2 Gas Transportation as LNG 116
4.6.2 Nuclear Energy 118
4.6.2.1 Fuelling Nuclear Power Plants 119
4.6.3 Oil Production and Power Generation 120
4.6.4 Alternatives: Hydro, Wind, Biomass, Solar, and Other Sources 122
4.6.4.1 Hydroelectricity 122
4.6.4.2 Non-hydro Alternatives 123
4.6.5 Comparison 125
4.6.5.1 Long-Term Conclusion 127
4.7 The Future of Coal Use: CtL and Coal Bed Methane 127
4.7.1 Coal to Liquid 128
4.7.2 Coal Bed Methane 130
5 The Global Steam Coal Market and Supply Curve 131
5.1 Geopolitical and Policy Environment 131
5.1.1 Introduction 131
5.1.2 Greenhouse Gas, Kyoto, and CO 2 Trading 132
5.1.3 Political Environment 133
5.2 Introduction to the Global Seaborne Coal Trade 135
5.2.1 Atlantic vs. Pacific Coal Markets 135
5.2.2 Market Participants and Market Power 137
5.2.2.1 Producers 137
5.2.2.2 Consumers 137
5.2.2.3 Traders 137
5.2.3 Seaborne Freight 138
5.3 Contract Terms, Coal Derivatives, and Price Formation Theory 141
5.3.1 Coal Contract Terms 141
5.3.2 Paper Coal Derivatives and the Impact on Price and Trade 142
5.3.2.1 Current Problems with Derivatives 144
5.3.2.2 Impact on Coal Price and Trade 144
5.3.3 Determinants of Coal Pricing 146
5.3.3.1 Marginal FOB Costs and Elasticity of Supply 147
5.3.3.2 Export Mine Capacity and Demand Growth 147
5.3.3.3 Emissions Prices 148
5.3.3.4 Sea Transportation Costs 149
5.3.4 Economic Theory and Coal Pricing 150
5.3.4.1 Perfect Competition 150
5.3.4.2 Monopoly 150
5.3.4.3 Regulated Monopoly 151
5.3.4.4 Imperfect Competition 151
5.4 Variable Cost Analysis Real Global FOB Costs 151
5.4.1 Methodology 152
5.4.2 Results 152
5.4.3 Implications 154
5.5 WorldCoal: GAMS-Programmed Coal Market Model Including Sea Freight 155
5.5.1 Implications 156
6 Industrial Structure: Game Theory and Cournot 158
6.1 Introduction 158
6.2 Reference Model 1: Perfect Competition 159
6.3 Reference Model 2: Monopoly 160
6.4 Cournot Competition 161
6.5 Bertrand and Stackelberg 161
6.5.1 Bertrand, Simultaneous Price Competition 161
6.5.2 Stackelberg, Dynamic Quantity Competition 162
6.5.2.1 Conclusions of the Stackelberg Model 162
6.6 Cournot with Constant vs. Increasing Marginal Cost 163
7 Conclusions, Implications, and the Future of Coal 165
7.1 Introduction 165
7.2 Implications of the Cournot Extension for the Coal Market 165
7.3 Current and Future Market Dynamics of the Coal Trade 167
7.3.1 Market Participants 167
7.3.2 Physical Trading Volumes 167
7.3.3 Trading Risks 168
7.3.4 Financial Markets/Derivatives 169
7.3.5 Regional Developments 169
7.3.6 Production and Trade Consolidation 170
7.4 Future Steam Coal Price Trends 171
7.5 Future Source of Energy: What Role Will Coal Play in the Global Power Mix? 173
7.5.1 Environment 175
7.6 Suggestions for Future Research 176
Bibliography 177
Appendix A Conversion of Energy Units 186
Appendix B World Electricity Production by Fuel 187
Appendix CCO2 Emissions by Source and Country 193
Appendix D Online Coal Survey Results and Questions 199
Appendix E WorldCoal Market Model 213
Input Data 217
Results for the Reference Year 2006 218
WorldCoal Quantities 218
WorldCoal Prices 219
Results for the Scenario 2015 221
Scenario 2015 Assumptions 222
Scenario 2015 Results 223
Implications 223
Appendix F GAMS Programming Syntax of WorldCoal 226
Appendix G Industrial Structure: Game Theory and Cournot 230
Reference Case 1: Perfect Competition 232
Reference Case 2: Monopoly 233
Monopoly Calculations 233
Lerner Index 235
A Monopoly with Linear Demand Function 236
Cournot Competition 237
Calculating Each Player’s Equilibrium Quantity qi* 237
Calculating the Total Market Quantity Q* in Equilibrium 239
Calculating the Equilibrium Market Price p* 239
Calculating the Equilibrium Profit * for Each Market Player 239
Calculating How Many Companies n Will Enter the Market 240
Summary Comparing Cournot to Monopoly 240
Bertrand and Stackelberg 241
Bertrand, Simultaneous Price Competition 241
Stackelberg, Dynamic Quantity Competition 242
Calculations of the Stackelberg Challenger 243
Calculations of the Stackelberg Leader 243
Example for the Stackelberg Model 244
Conclusions of the Stackelberg Model 245
Cournot with Constant versus Increasing Marginal Cost 245
Cournot with Constant Marginal Cost 246
Cournot with Increasing Marginal Cost – Introduction 246
Cournot with Increasing Marginal Cost – SimplifyingAssumptions 247
Comparison of Price with Constant versus IncreasingMarginal Cost 250
Graphical Price Comparison with Constant versus IncreasingMarginal Cost 250
Non-graphical Price Comparison with Constant versus IncreasingMarginal Cost 252
Comparison of Profit with Constant versus IncreasingMarginal Cost 253
Index 256