Coal, Its World Importance

Geotec is well positioned to take advantage of those increases. This increase represents a 2% year over year increase. Geotec will capitalize on international energy consumption trends with the optimization of its hydrocarbon inventory. The Geotec proprietary energy technology is scalable, mobile, while being both cost and energy efficient. The innovative technology allows for delivery of energy in multiple forms. Geotec has studied to identify trends that have been present in the past and adjust these for overall projected growth. There were industrial growth assumptions made on this basis and incorporated into the provisional model runs. These assumptions were based on both domestic and international energy concerns. It is at the heart of these trends that supports the growth in the Geotec business model.

Coal is a natural dark brown-to-black solid used as a fuel formed from fossilized plants. Coal can be ignited and burned to produce energy in the form of heat. It consists of various organic and inorganic compounds. One process in which coal was formed is that about 300 million years ago, much of the United States was swampland covered with giant ferns, reeds and other plants. When the plants died, they fell underwater. Underwater, the oxygen level prevented them from decaying completely, which resulted in the formation of peat. As the seas deposited layers of other materials over the peat through the centuries, the peat was tightly compacted and dried. The peat hardened in the final step of this natural process to become coal. Because coal is composed of once living material, it is known as a "fossil fuel" and is capable of being burned.

The quality of each coal deposit is determined by temperature and pressure and by the length of time in formation, which is referred to as its ‘organic maturity. Initially the peat is converted into lignite or ‘brown coal’ – these are coal-types with low organic maturity. In comparison to other coals, lignite is quite soft and its color can range from dark black to various shades of brown.

Over many more millions of years, the continuing effects of temperature and pressure produces further change in the lignite, progressively increasing its organic maturity and transforming it into the range known as ‘sub-bituminous’ coals.

Further chemical and physical changes occur until these coals became harder and blacker, forming the ‘bituminous’ or ‘hard coals’. Under the right conditions, the progressive increase in the organic maturity can continue, finally forming anthracite. The degree of change undergone by a coal as it matures from peat to anthracite – known as coalification – has an important bearing on its physical and chemical properties and is referred to as the ‘rank’ of the coal. Low rank coals, such as lignite and sub-bituminous coals are typically softer, friable materials with a dull, earthy appearance. They are characterized by high moisture levels and low carbon content, and therefore low energy content. Higher rank coals are generally harder and stronger and often have a black vitreous luster. They contain more carbon, have lower moisture content, and produce more energy. Anthracite is at the top of the rank scale and has a corresponding higher carbon and energy content and a lower moisture level.

Coke is used in various industries sectors such as metal foundries, merchant pig iron, lead and zinc smelting, ferrochrome production, production of manganese alloys, soda ash, stone wool or sugar refining. It is generally derived from metallurgical coal. But the vast majority of coke is used in the steel industry and the heating sector. The bulk of the coke production is used as sized coke that is needed in blast furnaces and coke fines are mainly used as sintering fuel. Geotec has over 200,000 tons of coking coal that can be produced from the fixed carbon in Geotec’s Asphaltite in Argentina. The Geotec technologies can also produce diesel and jet fuel from the Asphaltite feed stock containing the volatiles as is normally available from crude oil.

The graph below demonstrates the types of coal and its uses.

Coal production in the United States increased in 2004 by 39.7 million short tons to end the year at 1,111.5 million short tons (3.7 percent higher than the 2003 level of 1,071.8 million short tons), according to preliminary data from the Energy Information Administration. (Note: All percentage change calculations are done at the short-tons level.). Coal consumption increased in the electric power sector by 1.0. U.S. coal exports rose for the second consecutive year in 2004, while coal imports again increased to record levels. Total coal stocks declined during the year, as electric generators used their stockpiles to help meet increased demands and missed shipments, while coal producers used their stockpiles to supplement their production levels in 2004.

The rebounding economy in 2004 helped to drive up the demand for coal during the year. Although preliminary data show that total generation in the electric power sector (electric utilities and independent power producers) in the United States increased by 1.9 percent in 2004, coal’s share of generation decreased by 1.8 percent, resulting in only a 10.0 million short ton increase in coal consumed in the electric power sector. Coal use in the non-electric power sector declined slightly by 0.7 percent to a level of 89.1 million short tons. The coal supply of American utility companies has been below the normal five year inventory values.

Filings with the SEC state that coal inventories are low at two of its subsidiaries – Public Service Company of Colorado and Southwestern Public Service Company.

World coal consumption is projected to increase from 5,262 million short tons in 2002 to 7,245 million tons in 2015, at an average rate of 2.5 percent per year. From 2015 to 2025, the projected rate of increase in world coal consumption slows to 1.3 percent annually; total consumption in 2025 is projected at 8,226 tons. World GDP and primary energy consumption also are projected to grow at a more rapid pace during the first half than during the second half of the forecast period, reflecting a gradual slowdown in the growth of the economies of emerging Asia, which currently are expanding at a rapid pace. 

Coal consumption in 2002, primarily in the electric power and industrial sectors accounted for 24 percent of the total world energy consumption. Of the coal produced worldwide, 65 percent was shipped to electricity producers, 31 percent to industrial consumers, and most of the remaining 4 percent to coal consumers in the residential and commercial sectors. In the industrial sector coal is an important input for the manufacture of steel and for the production of steam and direct heat for other industrial applications.

Coal’s share of world energy consumption in the electricity and industrial sectors is projected to remain stable. As a consequence, its share of total world energy consumption remains near its 2002 share of 24%. In the electricity sector, coal ’s share of energy consumption is projected to decline slightly, from 39 percent in 2002 to 38 percent in 2025 .In the industrial sector, its share is projected to rise from 20 percent in 2002 to 22 percent in 2015 and to remain at that level through 2025.

In the international markets in 2004, both U.S. coal exports and imports increased for a second consecutive year. U.S. coal exports rose to 48.0 million short tons, an increase of 5.0 million short tons in 2004. U.S. coal imports reached another record level in 2004, ending the year at 27.3 million short tons, 2.2 million short tons higher than in 2003. The average delivered price of coal increased in all markets in 2004. However, the increases in the domestic markets were not as dramatic as in the international markets. The U.S. electric utility price-per-short-ton increase was 6.1 percent, while the increase was 3.7 percent for independent power producers. Coking coal prices had the largest increase for any domestic sector, increasing by 21.5 percent, while the price for the other industrial sector increased by 13.3 percent in 2004. In the international markets, the average price per short ton of export coal, measured in free alongside ship (f.a.s.) value, increased dramatically by 50.4 percent in 2004, while the price of coal imported into the United States rose by 19.3 percent. 

Population density is a driver of coal prices. Coal is a dominant player in electric sector. In 2003, 50.8% of electricity generation was powered by coal and 33% of our countries electrical grid capacity is supported by coal.

Between 2000 and 2003, demands for steel in China grew by 23% which increased the need for coal by 30 million tons. Investment in new Chinese steel works surged 170% compared to investment a year ago. This economic growth is driven by the rise of the Chinese middle class. The Chinese middle class has recently grown from 100 million people and will soon approach 250 million people. The growth rate implies that the Chinese economic boom will create a middle class one billion people strong.
 

Coal consumption in the emerging economies of Asia is projected to more than double, increasing from 2,118 million tons in 2002 to 3,715 million tons in 2015 and 4,435 million tons in 2025.The projected increase of 2,317 million tons from 2002 to 2025 represents 78 percent of the increase in worldwide coal consumption over the period. With substantial growth in coal consumption in China (1,819 million tons) and India (315 million tons) over the forecast period, emerging Asia’s share of total world coal consumption is projected to rise from 40 percent in 2002 to 51 percent in 2015 and 54 percent in 2025.

Despite the tremendous increases in coal consumption projected for emerging Asia, coal’s share of total energy consumption in the region is still projected to decline slightly, from 47 percent in 2002 to 44 percent in 2025. Much of the decline in coal’s share is attributed to fast-paced growth projected for natural gas use in the region. As very large countries (in terms of both population and landmass) with large domestic coal resources, China and India account for 71 percent of the total increase in coal use worldwide (on a Btu basis) over the forecast period; however, coal’s share of energy use in China and India, and in emerging Asia as a whole, still is projected to decline. The large increases in coal consumption projected for China and India are based on an outlook for strong economic growth (averaging 6.2 percent per year in China and 5.5 percent per year in India from 2002 to2025) and the expectation that a significant portion of the increased demand for energy will be met by coal, particularly in the industrial and electricity sectors. 

India is the largest democracy in the world, with about 16% of the world’s population. India’s population growth remains around 2%, and currently the country grows by about 17 million people a year, which means its population, will double within the next 35 years. But, keep in mind that not all births are recorded by the government, because many births still take place at home by means of midwifes or other elder women at home. Demographics estimate that even under the most optimistic estimates - India’s population will not stabilize below 1.7 billion. Take into consideration that India is one-third the size of America with a total land area of only 2,973,190 km2. The country remains predominantly rural, with just 26% of its people living in cities. Because of the current changes taking place in the nation’s economics, there is a swell of migration flowing into the cities from rural villages and farms. India will surpass China in population by the year 2050 with a population of 1.53 billion citizens. This demographic shift will continue the increases in demand for coal, to power the electric plants and build the cities.
 

More important to the coal industry is not pure population growth. It is the urbanization of the globe that will contribute to driving the industry. By 2050, there will be more than 60 mega cities of more than 10 million in population. Comparatively, there are only 15 mega cities today. The demand for energy and steel will be significant as these mega cities are created. This factor plus pure population growth will be a major driver of pricing.

references - Energy Information Administration ,the independent statistical and analytical agency within the Department of Energy July 2005 Xinhuanet Dailey CIA, 1995 India Notes Guardian Unlimited, November 6 2004