Wednesday, December 15, 2010

What's all the fuss about Coal? - Intro to Coal part 1

If you go to lounges and coffee shops of 5 stars hotels in Jakarta, you'll find at every other table people are talking about coal. Read the newspaper, there will be front page coal related article. Read magazines about Indonesia's richest persons, and a lot of them are Coal guys. Meet some old friend at a reunion and surely couple of them work at coal related industries.

Coal - World's largest source of electricity
Coal here, coal there, coal everywhere. Why does it fell like Indonesia is having coal fever? What's all the fuss about Coal?

Let's start at the beginning. Coal, or more specifically thermal coal, is a form of fuel. Like oil and gas it is hydrocarbon fuel, made from deposits of living things millions years ago, in the case of coal from old forests buried underground, from the time of the dinosaurs.

Open Cut Coal Mine
Coal is the easiest fossil fuel to mine. It is solid so easily handled and transported. Coal deposits are found in continuous layers up to tens of meters thick. This coal layers are located not far from ground surface. In most Indonesian mines, miners just need to cut the top layer of dirt for several meters then have coal exposed to be taken out. Such mine are called "Open Cut Mine" as opposed to "Underground Mine" where the coal are located further underground as more common in other countries in the world.

Coal is burned to create heat. Sometimes the heat is used directly as in the case of a paper mill, but most of the time the heat is used to create steam in a boiler that turns turbines to create electricity.

Coal is the largest source of electricity, to understand why, let's look at the alternatives,
  • Hydro-electric, while "free" to run, costs Billions of dollars to build the dam and destructive to the environment and require relocation of people in the affected area. 
  • Nuclear, while the "fuel" is relatively cheap as it lasts forever, costs Billions of dollars to build. Also poses catastrophic danger in the case of a meltdown as in the Chernobyl accident. Its radioactive fuel and waste are very dangerous to all life form so much that in the wrong hand can be used for terrorist activities. In this era of extreme paranoia, nuclear power plant is a no-go idea.
  • Oil. With crude hovering around $100, it simply is too expensive, generated electricity cost multiple times of coal powered electricity.
  • Gas power plant is the ideal power plant. It is cheap to run, cheap to build and relatively clean. There's a caveat though. It has to be built close to a gas source. Gas is extremely difficult to transport, it requires either pipelines or expensive liquefaction of compression for transporting over sea with gas tankers. It defies imagination of what would happen if a terrorist manage to blow up one of these highly pressurized, highly explosive tankers? 
  • Clean energy. Wind, Solar and Tidal are the power source of the future. Unfortunately the operative word is "future". They are not here yet. Extremely expensive, and nowhere near as scalable as the others yet.
World Energy Generation
Considering the weaknesses of the alternatives, no wonder coal is the largest source of electricity generation. It is relatively cheap to build and run. Its fuel is readily available, cheap to mine, relatively safe to handle and transport. There is one drawback. It is polluting. Developed countries can afford to burn only low polluting coal and invest in technology such as carbon capture and desulphurization, while poorer country will see it as a necessary evil to get the cheap electricity it delivers.

With the world population at almost 7 Billion and growing by a Billion every decade, requirement for electricity will grow along. All those people need electricity for day to day activities as well as production of goods. Not only the number of population increases, but also their quality of lives, along with more electricity requirement per capita.

Coal Power Plant
Coal power plants will certainly fill most of the requirement, further driving up the demand for coal.

This increasing demand for coal has been going on for the last decade and will continue for the next foreseeable future. This creates the buzz in Indonesia as the world largest exporter. Indonesia export over 200 Million Metric Ton of coal per year out of an annual production of around 320 Million MT.

Without reference it is hard to understand the significance of this number. This production level is equivalent to filling a football field 2 stories high every minute, every hour, every day of the year. Or if you line the trucks, it would be 25KM long for 1 minute's worth of production.

All those coal need to be mined, hauled, crushed, barged, shipped, inspected, traded, financed, banked and involve a lot of money, people and businesses. No wonder there is a lot of fuss about coal. It is much ado about something.

Just for fun, let's calculate 320 Million Ton of Coal x $70 average price / Ton x Rp 9.000 / $ equals Rp.201,600,000,000,000. That's over 200 Trillion Rupiah per year!

That's a lot off zeros to fuss about...

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