Coal generates 41% of the world’s electricity according to the World Coal Association and global consumption is expected to increase by 56% to 2035 or 260 quadrillion Btu (US Department of Energy). The global economic crisis saw a drop in demand from OECD countries in line with declining industrial productivity coupled with environmental concerns to reduce reliance on coal. However the continuing volatility in the Middle East which maintains high oil prices and doubts over the future of nuclear energy is keeping up demand for coal. Indonesia is one of the world’s largest exporters of coal, being suitably positioned to take advantage of the energy hungry markets of China and India. Increased domestic consumption is also driving coal production with rising demand for electricity from industry and the growing population. Confidence in the coal sector is at an all time high with coal stocks outperforming the main index; companies outside of the industry are entering the fray on top of the high profile deal between one of Indonesia’s most high profile business tycoons and the Rothschild family.
Indonesia has 5529 million tons of proven coal reserves or 0.6% of the world total, as per the 2011 BP Statistical Energy Survey. The main producing regions are found in South Sumatra, South Kalimantan and East Kalimantan with 39%, 43% and 16% of reserves respectively. The country has become a major coal exporter relatively recently over the past decade with total production quadrupling from 1998 and total production reaching 320 MET in 2010. Indonesia is the world’s third largest coal exporter and the leading thermal coal exporter to date, while annual exports are expected to grow to 421 MET by 2025 to take advantage of the increasing appetite for coal in Asia’s emerging markets. The proximity of Indonesia’s main mining sites in Kalimantan to China and Japan, as well as waterways for shipping that avoid congested ports and routes, are contributing factors to its recent successes. The low wages and vast amounts of shallow deposits of coal that make its range of coal qualities competitively priced for the global market is a further aspect. In terms of type of coal, 13% is high quality bituminous coal at more than 7100 Kcal/kg or ‘coking coal’, 62% is bituminous thermal coal at 6100-7100 Kcal/kg and 24% is low quality coal at below 5,100 Kcal/kg. The average calorific values of 5000-7000 Kcal/kg, with low sulphur and ash content makes Indonesian coal highly sought after.
Despite the economic downturn that depressed coal demand around the world from 2008-2009, Indonesia’s coal exports have continued to increase accounting for 70% of total production. The sources of increased demand for coal are centred in emerging markets such as China and India that need to power their rapid industrial growth and are among the top coal consumers worldwide. China’s electricity sector must grow by 3.5% a year to keep pace with economic growth and more than 70% of its electricity is currently fired by coal. India’s coal fired generating capacity is also expected to increase by 2% a year. Japan has been a traditional market and main export partner for Indonesia’s coal; Japanese purchases increased by 157% from 2000 to 2007. The beginning of 2011 has seen a change in this trend with India set to become the largest importer of Indonesian coal with an increase of 5 million MET from 2010 figures. Total exports to India are expected to reach 90 million MET by 2013, according to the Indonesian Coal Mining Association.
With the events in Japan having cast doubt on nuclear energy as a future energy source for developed markets, coal may once again see high demand from developed markets as well as emerging ones. Japan in particular will rely on Indonesian coal for its short term energy needs as it engages in the process of recovery. Indonesia has the advantages of high quality coal that offers lower environmental impact in comparison to other export markets and thus maintains its competitive edge. Confidence in coal for producers and investors will therefore be sustained in the short and medium term.
Global Business Guide Indonesia - 2012
Contribution to GDP: 8% (2011)
Imports: $40 billion (2011)
Proven Oil Reserves: 4.2 billion barrels (2011)
Proven Gas Reserves: 109 trillion cubic feet (2011)
Proven Coal Reserves: 28 billion MET (2012)
Proven potential in Geothermal Energy: 28 GW
Proven potential in Hydropower: 75 GW
Other Energy Sources: Coal Bed Methane, Solar, Biomass, Sea Current Energy.
Current Energy Mix: Oil 47.6%, Coal 26.3%, Gas 21.4%, Hydro 3.2%, Geothermal 1.5% (2011).