what you need to know about coal

I decided to write this post as a reminder to myself, and though my knowledge in the subject is highly limited, I never say that what I write here is the exact knowledge, as you can always try to google it.

everything is exactly what I have so far understood about the industry and why it is important to gain more knowledge. So here we go.

what you need to know about coal, specifically Indonesian coal.

Coal is in fact that black stuff, sometimes shiny most often not, obtained from simply digging the earth to a particular depth.

There are many methods to mine coal. You can specifically calculate how much chaos to create by blasting the earth, and avoid blowing it to smithereens, or just dig, as coal is contained at various ground levels (as far as I know) and will take form in seams, slices of earth.

Indonesia has yet to implement underground mining, which should be immediately implement if they really care about their forests.

The amount of ground you blasted and removed to reach the coal is called 'overburden', which miners will need to consider as input in the amount of money to pay if they happen to hire contractors.

Indonesia has some 104 billion tons of coal resource and some 21 billion tons of reserve (once again, these numbers are on top of my head. In its recent development, the number, apparently, has been revised, my guts say to attract more investors). But almost, or even more, 70 percent of these reserve are low rank coals.

Low rank coal is coal with specific calorific value, normally from 5,700 kcal/kg down to the lowest.

Australia has the highest reserve of higher rank coal, those with higher than 5,700 kcal/kg calorific value, and their biggest market is Japan, as they have in the early days designed power plants that require coal with higher calorific values.

Calorific value is the amount calorie in coal, the higher the water content, ash and sulphur, the lower the calorific value. Similarly, the higher the calorific value, the easier the coal will burn and vice versa.

This is why you will hear various measurements of calorific value in coal, such as NAR, GAR or ADB, they simply refer to when or at what stage the calorific value is being measured.

Higher calorific value coal, anthracite and coking coal, are mostly used in steel plants, while thermal coal is mostly used to create steam in power plants, as it is cheap and can create stable heat for power plants to run.

This is why coal is deployed to reach the benchmark power needs, while the remaining ever changing electricity need, such as when people turn all the lights and TVs at night or when people go to work and leave all electricity off by day, is provided through various other plants using other sources of energy.

The better illustration is when people turn off all lights, some things are turned on, such as your beloved fridge, and in a country, it is possible to have the lowest need of electricity at certain points, a level that will not go down any further. This is the benchmark which is supplied by coal powered power plants.

If you have questions why a country needs diesels or even LNG in their energy mix, while coal powered power plants are already available, it's because you can't simply turn off coal fired power plants, while diesel power plants can be easily turned on and off like your regular household generators, so it goes.

Modern countries use hydro, solar even wave and wind, countries like Indonesia use other natural resources they can burn.

Is it possible to increase the calorific value?

There are technologies that are called coal dryer, and gassification or others with similar purposes, that the Korean and Japanese have cleverly designed. Recent studies, nevertheless revealed that the available upgrading technologies are still uneconomical in a sense that the price of upgrading the coal, to have higher calorific value, make the coal more expensive than the coal already mined with the targeted calorific value. 

There are also called coal liquifaction technology, which the Germans had used to fuel their planes during the second world war (so I've been told) and the South African during the apartheid, as they were cut off from the rest of the world's oil.

Why Indonesia decided to import low rank coal, in addition to it being what the country has abundant, is because there's market for it.

Both India and China are some of the biggest coal producers in the planet, but they cleverly, cunningly decide to wait until the price is high before finally dig their own holes. that's my own opinion, but people have said that they have yet gained access to the coal source.

India has most of the minable reserves located below certain areas dominated by moslems (or is it communits?) who are in constant clash with the government, and to rely on coal exports, they have built power plants that can eat up even the least calorific value coal, down to 3500 kcal/kg, so they say.

India now face a problem where the price of imported coal remain higher than their price of electricity.

In the case of China, as most coal reserve is located in Mongolia, which is way at the top of the globe, import from countries divided by seas is cheaper. But rumors has it that they have build railroad for transportation.

Because transportation is key.

Logistic, so it says, make up for about 30 to 40 percent of the end price of coal. Using truck for land transport is cheap, but train is cheaper, and sea transportation is cheaper than trains.

This is why it's a lot cheaper for China to import its coal from Indonesia, through seaborne coal trade, than transporting their own coal from Mongolia through trucks and hopefully trains.

India is almost similar, but some of their reasons are that their reserve, despite being high, has those accessible to them considerably lower than their demands for energy, on an annual calculation basis, obviously.

In addition, their coal has high sulfuric content that can poison the air if released through the burning of the coal. This is why they need Indonesia's low sulfuric content coal as blending coal.

Like colors, blending red with yellow will get orange, and you can make orange juice.

Indonesia tries to cut logistic by creating mine mouth power plants, power plants that are built at the mouth of coal mines.

At least 17 percent of Indonesia's up to 346 million tons of coal production is imported to India, which accounted for almost 70 percent of their entire coal needs annually.

In addition, because the price gap between low rank and high rank is quite significant, both India and China's specific power plants, generally those that consists of 2 or 3 small MW steam engines, are designed to be able to avoid the steeper priced coal.

As Japan and Korea are stuck with their high rank powered power plants, they have conducted studies, invested billions of american dollars, to build technologies that can increase low rank coal's calorific values, so they can import from low rank coal producers.

Like wise, countries like Indonesia who desperately try to cut low calorie coal imports as domestic demands stay at about 24 percent of the total production, which folded to around 10 times in the last 20 years.

However these technologies, as previously mentioned, can not meet the logical economical calculation, in a sense that people will need to pay additional, say around 28 dollars, to dry a ton of their coal, probably increasing their calorific value, but allowing them to gain their water content back during stocking, hence becoming a waste of money.

People need to make profit, similar or even more.

I've also been informed that to use some of these technologies, people will need to pay annual patented right fee, another discouragement.

Yet, all of this  leads to a conclusion. If you plan to get a coal mine or purchase coal, some of the key inquiries are: what do you need the coal for? which lead to the calorific value of the coal. how much do you need? what is the average selling price per ton? do you need to secure supply? which lead to whether you should consider long term contracts or spot market. how will you get the coal? who will be in charge of delivering the coal to you? how much is the delivery will cost?

There's always the detail of whether the calorific value of the coal will stay the same by calculation from the moment it was mined down to the moment it reached buyers' power plant, Letter of Credit as payment, and so on and so forth.

Acquiring a concession is almost similar. How much is the resource? reserve? and mine-able reserve? in order to gain proper information about this, at which exploration stage the concession is currently undergoing? if it's already operational, how much is the output per month? per year? how was it's performance since it starts operating? what is the calorific value of the coal? and how far is it from the nearest bulk terminal? what transportation means are deployed unto the terminal?

And there's the external factors, such as regulations, law certainty and worse come to worse, the Churchill mining case.

The so on and so forth basically means that you will need to do your homework.

what I know so far about long term contracts and spot market is that coal producers normally sell about 90 percent of their output on long term contracts to guarantee security of finance.

the thing about long term contracts are that they may have signed a deal for one, two to three years, but the price is not immediately decided, but follows the ups and downs of coal prices which are then renegotiated between both buyers and sellers every year.

Spot, on the other hand, is an opportunity to gamble, in a sense to gain the most profit in accordance with the situation at the market. this means that in order to get the most profit, one will need to gain as much as understanding of the market, so they can make proper speculations with well managed risks.

coal under spot contracts does not necessarily more expensive than coal on long term contracts, though it does not necessarily cheaper as well.

There will be a condition in the market where heavy rainfall disturb production, or the accelerated productions of new players elevate supply over demands. And these are the types of information to get before jumping into spot markets, obviously if your company is not the one signing long term contracts with those whose productions are disrupted by heavy rainfall.

Two of the main coal producers in Indonesia is Kalimantan and Sumatra, though only the eastern and southern parts of Kalimantan are. Central Kalimantan was said to have the biggest high rank coal resource, but lack of transportation facility has managed to safely contain all resource.

Barito river is one of the biggest rivers that link Central Kalimantan to the shores of Banjarmasin, which expectantly, coal is then load up into bigger ships, notably Panamax or that one type vessel I completely forgot, into the seaborne market, transported to potential buyer nations throughout the globe.

You can try to google which part of Sumatra has the highest coal reserve, but the same transportation problems have prevented the island to get properly drained out of its resources. If ever a corrupt government can be 'beneficial' to a country is in these types of cases.

If you managed to pay attention to my sarcastic notes, these things are almost scientifically, if not redundantly, called 'resource nationalism', which Australia's recent decision and China's old decision to apply export tax on coal is one indication.

Indonesia's recent decision to force 51 percent divestment and talks of banning low rank coal export are the exaggerated, if not paranoid, indications.

Then again, it's their coal to begin with, obtained through hundred years of war in blood and sanity.