As China Burns More Coal, India Needs More

By Dezan Shira & Associates

Posted: 22nd February 2013 09:42

Recent figures from the U.S. Energy Information Administration have revealed that China consumes almost as much coal as the rest of the world combined. Perhaps even more shocking, it has been estimated that India, who currently faces domestic shortages, could be importing as much coal as China by 2017. As the Asian giants continue to consume resources at an extraordinary rate to fund their development, it is increasingly clear that their consumption of coal may be a cause for concern.
 
In 2011, China’s coal consumption grew 9 percent, rising to a massive 3.8 billion tons. In the same period, the rest of the world combined was consuming 4.3 billion tons of coal. Analysts from Macquarie Bank now expect China to consume 3.9 billion tons in 2013.
 
Chinese coal imports, however, will fall by almost 10 percent in 2013 due to rising domestic supply, improved transport networks and weak power demand growth. According to a poll of 12 analysts, total imports are expected to stand at almost 210 million tons in 2013, compared to the 234.3 million tons of coal which was imported last year.
 
China’s leaders have also increasingly been shifting their priorities towards energy conservation, and away from the coal-driven industrialization which has been witnessed in the past decade. In a newly revealed five-year plan ending 2015, China will aim to cap it’s total coal consumption at 4 billion tons.
 
“It’s time to make change,” said Dr Jiang Kejun, director of the Energy Research Institute under China’s National Development and Reform Commission. “There’s no market for further development of energy-intensive industry.”
 
It has now been estimated by the International Energy Agency that India may be importing as much coal as China by 2017. These imports will largely be necessary to make up for the countries slacking domestic supply. India has large reserves of coal, however, its economy is growing at a rate where domestic production is unable to meet consumer demand.
 
India currently relies on coal-fired power plants for the majority of its electricity production. However, strict environmental regulations make it difficult to increase the output of the power plants. Importing large amounts of coal is also not always an efficient alternative, as it is difficult to pass on the costs to consumers, many of who live on less than two U.S. dollars a day.
 
India is thus commonly faced with power outages due to the slow supply of coal. Cities are commonly plagued with blackouts that last for hours, especially during the summer months when air-conditioning is needed.
 
In response, India now aims to build at least 16 more power plants, referred to as ultra-mega power projects. As the state-run Coal India Ltd. will be unable to keep up with consumer demand by itself, these projects have also been awarded to private firms. Many of these private firms will rely on coal that is imported, rather than sourced domestically.
 
These private firms, however, have ran into further roadblocks that will stymie the production of coal. A proposal has been made by the Ministry of Environment and Forests whereby India will only grant environmental clearance to coal imports of the highest quality.
 
“The environment ministry wants to ensure that imported coal in the country is of good value,” said a government official. “The quality of coal in the country needs to be of acceptable standards.”
 
Previously, private firms were looking to import lower-quality coal in a bid to keep prices low for the end consumer. Now it will be increasingly difficult to find alternate sources of affordable, yet high-quality, coal.
 
“Indian power companies may have to consider alternative options in the wake of the new environmental regulation, which may be relatively scarce and expensive,” said Dipesh Dipu, a consultant with an Indian energy firm.
 
China and India’s coal-consumption, however, may not be a worrying issue in the long-term. Recent insight from BP’s World Energy Outlook 2030 report reveals that even though China and India will consume 65 percent of global coal in 2030, growth in coal demand will actually slow down.
 
In India, it is predicted that growth in coal demand will slow from 6.5 percent a year in 2000-10 to 3.6 percent a year during 2011-2030. Similarly in China, growth will slow from 3.5 percent to only 0.4 percent each year in 2020-2030.
 
As gains are made in energy efficiency, including the shift to economic activities that are less coal-intensive, demand for coal will decrease. Furthermore, coal will increasingly be used less for electricity generation, as gas, nuclear energy and renewable sources of energy are developed and become more widely used.
 
 
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

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