India joins global scramble for coal

India Coal Mine Acquisitions drive energy security as CIL targets overseas assets in Australia, Indonesia, and the US, amid OPEC oil dynamics, China demand, thermal power needs, joint ventures, and volatile coal pricing and geopolitics.

The rush to own coal in any form seems to be a global obsession, whether in mature, developing, or underdeveloped economies.

The cartelization of oil producers under the Organization for Petroleum Exporting Countries (OPEC), as well as the fact that many alternative sources of energy remain commercially unviable, have ensured that coal remains an economical and desirable source of energy for India's coal dependence in the near term. Luckily, the coal owning or producing nations have not yet formed a cartel. India, the world's second-fastest emerging economy is no different than other countries.

The country needs more coal, as power plants are dangerously low across India.

Indian companies, both state-owned and private, are scrambling to capture coal mines through overseas acquisitions throughout the world. Coal India Limited (CIL), fully owned by the government of India, recently announced the intention to acquire a stake in about 20 coal mines across the globe. Australia, Indonesia and the United States are on the company's radar.

CIL has a war chest of $2 billion, which it hopes to invest before July this year, including targets in Appalachia under review. Nine investment proposals are lying on CIL's tables for finalization. This move is expected to give CIL an assured supply of 500 million tonnes of coal in the next decade, said CIL Chairman Partha Bhattacharyya.

Government data projects India's need for coal will be about 731 million tonnes by 2011-12, with 100 million-ton imports by 2012 under consideration. Through technological innovation and managerial efficiency, the country could manage to mine 680 million tonnes, leaving about 50 million tonnes that need to be imported.

The obvious question: At what price?

Given China's hunger for all forms of fuel to provide fodder for its relentless growth, there will be a mad scramble by the country for coal supplies in the coming years, which will obviously impact global coal prices. For Indian companies needing thermal power, and with 35 million tons for 2010-11 slated for import, ownership of coalmines abroad is an increasingly viable strategy.

The latest estimates project that 201 coal blocks, with geological reserves of approximately 46 billion tonnes, have been identified in India and allotted to government and private companies.

As of December 31, 2009, the country's total coal production was about 493 million tonnes, and as King Coal returns with new technologies, the projection that the supply would reach 680 million tonnes within 24 months appears dicey. If so, the additional shortfall would be a blessing in disguise for global coal suppliers, enabling them charge an extra premium for every million tonnes sold.

However, some coal experts in India believe that the global climate debate and the decision to reduce carbon emissions will compel many coal miners to exhaust their supply as early as possible at any price.

This mad scramble for coal has led to global giants such as Peabody Energy Corporation, Massey Energy Company and India Resources Limited aggressively scouting for joint venture options with Indian companies such as Jindal Steel & Power Limited and Mercator Lines Limited. Shipping companies' interest stems from floating offshore coal warehousing — a practice common in the global oil scenario.

The scramble for coal is beginning to intensify, and the geopolitical and economic results of this scramble remain to be seen.

Related News

• Electricity Forum News

• Power Generation News