Coal’s Gambit

Last year, the International Energy Agency (IEA) summed up the global coal sector with a single word: “stubborn”. Despite media reports and an international push to “consign coal power to history”, coal generation, production, prices, and in some cases, profits, broke or neared record highs.

The state of play wrought renewed speculation about a coal comeback. After the sudden onset of energy instability last year, the industry mined more coal in 2022 than ever before, producing 8 billion t. Today, developers continue to plan, build, and open new mines. Global Energy Monitor’s (GEM) Global Coal Mine Tracker, a public registry of the world’s major coal mines and projects, has documented 398 coal mine projects and 1.8 billion t of new mining capacity under consideration. These insights come amid favourable forecasts that high coal prices could persist until 2026.

But, coal supply today is a matter of public scrutiny. Coal’s record-breaking year in 2022 also meant that its share of carbon dioxide emissions topped 15.5 billion t for the first time, and inquiries mounted on coal mining’s methane emissions. For years, the industry’s expansion plans have unnerved major investors, governments, and civil society on economic and climate grounds, and the IEA has now repeatedly warned that no new mines or mine expansions are required under net zero pathways.

Coal mining projects therefore provide a source of insight into the industry’s gambit and how it intends to manoeuvre in the years ahead.

Key insights:

• Hundreds of coal projects in planning: There are 398 coal mine projects and 1.8 billion t of mine capacity under consideration worldwide.
• China and India dominate new activity: China (657 million tpy) and India (558 million tpy) account for two-thirds of projects in planning.
• Most projects publicly financed: State-owned enterprises control more than half (51%) of mine development projects (936 million tpy), meaning public financing is essential to future development.
• Most projects in the early stages of planning: Globally, 54% of mining capacity is in early stages of planning (990 million tpy) and vulnerable to cancellation.

Figure 1. Mapping coal mining projects under development worldwide. Source: Global Coal Mine Tracker, Global Energy Monitor.

Country snapshots: Where are the projects?

The global coal sector today leans heavily on the Asia-Pacific region and over the last half decade and coal powerhouses in China, India, and Indonesia have propped up industry supply. GEM’s new data suggests that trend may intensify in the near term. Coal developers have hundreds of new mines or expansion projects under consideration in 29 countries. But almost the entirety of those projects – 90% of proposed capacity – is situated in just five coal-producers: China, India, Australia, Russia, and South Africa.

Figure 2. 90% of global coal mining projects are concentrated in just 5 producing countries: China, India, Australia, Russia, and South Africa. Source: Global Coal Mine Tracker, Global Energy Monitor.

China and India

Coal development is strongest in China and India, where state-owned enterprises (SOEs), with majority government ownership, continue to invest in new operations. In 2021, policymakers in China encouraged heightened production to shore up supplies in response to an acute domestic energy crisis, and just last year, Chinese coal developers put 239 million tpy of new capacity into operation. The frenzy of mining activity has continued into the early months of 2023, with 180 mine projects and 657 million tpy of capacity still under consideration, and most of it – 488 million tpy– already permitted or under construction.

Despite the predominance of China’s big mining companies in the sector, smaller operators remain responsible for most of the country’s new mining boom. The six largest coal developers in China comprise only 30% of proposed production – China Datang (39 million tpy), China Energy (35 million tpy), Shaanxi Yulin Energy Group (34 million tpy), Jinneng Group (27 million tpy), China Huaneng (21 million tpy), Shandong Energy (21 million tpy), Beijing Huayuan Jiaxin Group (21 million tpy). The rest is under planning by smaller national and provincial firms.

Similarly, the onset of a power crisis in India last year emboldened the national government to press ahead with energy self-sufficiency and pursue 93 coal projects and 558 million tpy proposed new capacity. In a country of relatively small mines, developers remain surprisingly bullish about large-scale projects. Mahanadi Coalfield Ltd’s (MCL) proposed Siarmal Open Cast Mine seeks to produce up to 48 million tpy in Odisha, for a span of 38 years, making it the single largest project under development in the world.

Coal India, the largest coal producer and global developer, is responsible for only half of the country’s proposed mines, a sign that the government’s decision to promote competition and open coal blocks to private investors has weakened the monopoly of its major state-owned enterprise for future development scenarios.

But, neither the behemoth Siarmal project nor any of India’s smaller coal mine projects is likely to solve the country’s short-term power needs. The new mines would not open fast enough to meet coal demand in the near-term, and new operations would likely be plagued by the same inefficiencies – such as low labour productivity, competition from renewables, and land acquisition issues – that have led to chronic underutilisation of the country’s operating coal mines. India’s announcement in May that it will halt new coal-fired capacity puts those mining projects in further doubt.

Figure 3. Most major developers are state-owned enterprises in China and India. Source: Global Coal Mine Tracker, Global Energy Monitor.

Australia and Indonesia

The world’s major coal exporters, Australia and Indonesia, have begun to diverge in proposed planning. Australia has shown the greatest appetite for new coal mine projects, behind only China and India, with 175 million tpy under consideration, the most of any OECD nation. Australia is also the country that boasts the highest reductions in mine developments. In 2022, its coal producers presumably shelved a total of 79 million tpy of new capacity and cancelled 89 million tpy, including two high-profile projects: Waratah Coal’s 40 million tpy Galilee Coal Mine, whose environmental permit was rejected due to the 1.58 Gt of greenhouse gas emissions the mine was projected to emit; and the 10 million tpy Central Queensland Coal Project, which was rejected due to its proximity to the Great Barrier Reef World Heritage Area.

Australia’s reductions in mining activity predated the recent election of its new government which campaigned on climate action. But in May 2023, the new government still approved the Issac River coal mine, suggesting that Australia will remain reliant on seaborne trade in the near term, especially for metallurgical coal, as Asia-Pacific importers, like Vietnam, move toward net zero by mid-century.

By contrast, Indonesia has fewer proposals under development than other major producers (26 million tpy), despite a rampant surge in production over the last half decade. The country could witness new mining activity in the year ahead for export, or experience an about-face: Indonesia is part of the new Just Energy Transition Partnerships (JETP), a negotiated aid programme that seeks in part to phase out coal power generation, with US$20 billion pledged over the next three to five years.

South Africa and Russia

The number of coal mines in South Africa remained consistent from 2021 (30 projects) to 2022 (31 projects), but the projected capacity actually increased by 15%, climbing from 98 million tpy to 116 million tpy. Most of these mining projects are controlled by small and medium-scale firms, including Canyon Coal, which controls plans for seven of the country’s 31 coal mine projects.

This rise in South Africa’s planned coal capacity conflicts with its 2050 net zero commitment, just as civil society groups also worry that opening additional mines in a country with over 400 abandoned coal sites will deepen concerns about the country’s legacy of polluted lands and waterways. As with Indonesia, South Africa’s coal future is bound-up with last year’s US$8.5 billion JETP package.

The most unpredictable market is Russia, which has reduced its output after sanctions imposed following its invasion of Ukraine. But Russia has remained doggedly committed to new coal mine projects, with 30 mines (144 million tpy) still in planning. Before the invasion, Russia had a much larger development scheme underway, with several major export projects, including railways and coal terminals, in planning for the Arctic region.

Yet over the course of the year, producers scaled back these development plans with 77 million tpy presumably shelved and 24 million tpy cancelled – the deepest cuts made by any country except for Australia. The simultaneous push to announce new projects, even as old projects failed to come into fruition, indicates Russia’s unwieldy future. The major Russian coal developer, A-Property, now has 38 million tpy under development, which ranks 4^th in the world.

Figure 4. Early stage mine projects have been announced or undergoing permitting but have yet to receive government approvals. Source: Global Coal Mine Tracker, Global Energy Monitor.

Status snapshot: Who and when?

The planning and construction of new coal mines remains contingent on finance, politics, and the costs and accessibility of renewables. Globally, state-owned enterprises control 51% of new coal projects and rely on public funding and subsidies. The ownership structure has historically shielded operators from external market pressures.

But in the rest of the world, small and independent firms have shown greater interest in mine developments than multinationals. The companies pursuing these projects are mostly in the early stages of planning. They have announced their proposals and perhaps even started exploration, feasibility studies, and government approvals, but have yet to receive any final permits. So far in 2023, almost 1 billion t of proposed capacity fall under this category.

Whenever early phase projects are underway, they are particularly vulnerable to the obstruction of government approvals and mine financing. In 2022, several of these high-profile mining projects received international attention for provoking intense civil society opposition at critical junctures – such as the Whitehaven coal project in the UK, the Garzweiler mine expansion in Germany, and the Deocha-Pachami coal project in India.

Figure 5. Late stage mine projects have received permitting or already under construction. Source: Global Coal Mine Tracker, Global Energy Monitor.

Whatever the case, companies still have permits in hand or construction is already underway at 45% of active coal mining projects. Those projects have advanced into late-stage planning in 13 countries and face fewer logistical obstacles before operation. Last year, for instance, 556 million tpy of new coal capacity, most of it in China and Russia, went into operation without incident.

But, even late-stage projects harbour risk. GEM estimates that capital expenditures for under construction mines is roughly US$21 billion. If those coal mines open as intended, but are forced to lower production levels or close early, either because of market pressures or government policies related to the Paris Climate Agreement, then they could default on loans and become stranded assets.

What a global survey of coal mining projects reveals, in other words, is that continued coal development has remained familiar and near-at-hand for some countries in a moment of energy upheaval. But only time will tell if the coal sector’s gambit for new mining capacity has any basis, or whether short-term decisions now will lock the industry into a future of stranded assets and a harried and unprepared transition in a net zero future.

Read the article online at: https://www.worldcoal.com/coal/14082023/coals-gambit/