THE FUTURE OF COAL DEPEND ON ELECTRICITY
10 October 1996
THE COAL SITUATION IN THE ECE REGION IN 1995/1996
AND THE GLOBAL PROSPECTS FOR COAL
After 35 years of coal industry restructuring in western and six years in eastern Europe, the process is
gaining momentum as governments have begun to reduce or remove subsidies to the coal industry. This
will lead to a further drastic decrease in production and employment in this sector, which are sensitive
issues in the countries concerned. In its survey of the coal situation in the ECE region in 1995/1996, the
United Nations Economic Commission for Europe (UN/ECE) concludes that in 1996, the fall of coal
production and consumption both in eastern and western Europe, including the area of the former Soviet
Union, has come to a temporary halt and that in the long run, up to 2010, coal production and demand in
the countries of the former Soviet Union are expected to increase again due to the economic recovery,
while in western Europe a continuation of the downward trend is forecast owing to rising energy efficiency
and ecological control measures.
Planned reduction of coal production
According to the survey, the decline of the coal production in Europe, which has accelerated since 1990,
continued through 1995. The reason for the decline is that European coals, which are predominantly mined
underground and under difficult geological conditions, are currently not competitive with coals from
overseas, which can be mined more easily and mostly opencast.
Since the underground coal in western Europe is produced at three times and more the price of coal in the
world market, reducing production is seen by most countries as the only way out of the expensive coal
industry. In eastern Europe, too, costs and prices have become criteria in the restructuring plans for the
coal industry.
In 1995, eastern and western European hard coal output together fell by about 30 Mt or 5% to 535 Mt
and is now representing 19% of global output compared to 25% in 1990. In 1996, a temporary
stabilization of hard coal production is forecast for eastern as well as western Europe as a whole.
However, further reductions in coal output are planned during the 1996-2005 period. In some countries,
they could be drastic. For example, proposals made in Germany are going as far as reducing hard coal
output from 60 Mt to 13 Mt and the underground workforce from 60 000 to 16 000 in the 1996-2005
period. France has decided to stop coal mining by 2005. A new restructuring plan in Poland foresees the
cutting of hard coal output by 20 Mt and employment by 80 000 jobs in the next five years in order to
make the coal industry profitable. In the Russian Federation, 140 underground coal mines will have to be
closed in the next 5 to 7 years to free the coal industry from state subsidies which now amount to 23%
of the coal production costs compared to 77% in 1993.
European brown coal production, too, has been and will be further reduced for economic and environmental
reasons.
Privatization, productivity and downstream integration are now considered to be the best ways of aligning
the European coal industry with the market forces.
Coal consumption depending on electricity and application of clean coal technologies
Coal consumption trends are different among the ECE subregions. In 1995, Europe accounted for 20%
of global coal consumption. Coal demand has been declining steadily in Europe, especially during the past
five years, mainly because of the global economic recession, the collapse and restructuring of the eastern
European economies and the diversification of the energy supply mix. In western Europe, coal consumption
fell by 32 Mt and in eastern Europe, including the area of the former Soviet Union, by 46 Mt, whereas in
the USA, coal consumption increased by about 20 Mt or 2%. In 1996, the falls in coal consumption in
eastern as well as western Europe are expected to come to a temporary halt. In the longer term up to the
year 2010, western European coal demand is forecast to decline further owing to greater energy efficiency,
new energy technologies and substitution of coal, especially by natural gas, while eastern European coal
demand, particularly in the countries of the former Soviet Union, is expected to increase because of a
general economic recovery.
In the ECE region and in the world, the future of coal will increasingly depend on the electricity industry,
as demand from other user sectors such as coke-making, is expected to continue declining. About 85%
of the hard coal and virtually all of the brown coal consumed in the ECE region was used for heat and
electricity generation and only about 12% of ECE hard coal output was used for coke-making in 1995.
Currently, coal is the dominant fuel for electricity, providing close to 45% of the world's electricity and
40% in the ECE region. Coal is the second most important source of primary energy after oil in the world.
In the ECE region, coal lost this position to natural gas. However, Europe cannot do without coal as an
energy source for the foreseeable future, but the degree of coal consumption will depend on how fast clean
coal technologies are being applied and how the price of natural gas will develop in the European and world
energy markets.
International coal trade dominated by steam coal and Asia
After three years of near stagnation, a strong rise occurred in world coal trade in 1995, mainly driven by
increased steam coal import demand in Europe and Asia. In 1995, world coal trade increased by about 30
Mt or 6% to about 490 Mt of which 420 Mt were seaborne. There was an increase in coking coal trade
again, bringing to a halt the constant decline since 1991. This development, however, cannot disguise the
steadily rising share of steam coal in international coal trade which is forecast to accelerate.
The share of ECE coal exporting countries in global exports continued to fall, namely from 50% in 1990
to 40% in 1995. Total ECE coal exports amounted to about 185 Mt and were accounted for by 7
countries, namely the USA, Canada, Kazakstan, Russian Federation, Poland, Czech Republic and Ukraine,
in order of magnitude. European coal exports have been declining, from some 80 Mt in 1990 to 70 Mt in
1995. Coal exports from western Europe virtually ceased and western European coal producers are not
likely to return to the export business but some of the eastern European coal producers, especially the
Russian Federation, would have the potential to increase exports to the European and overseas markets.
With geographical proximity being a major comparative advantage in the coal business, especially for the
European coal exporters, an increase in intra-European coal trade has already been noted.
However, the bulk of European coal imports stemmed from overseas sources of supply, principally the
USA, South Africa, Australia and Colombia. Within Europe, western Europe imported 160 Mt in 1995,
which was about 10 Mt more than in 1994, and eastern Europe, including the area of the former Soviet
Union, imported 65 Mt or about 5 Mt more than in 1994. Coal imports into Canada from the neighbouring
USA amounted to 10 Mt and coal imports into the USA from Colombia and Venezuela reached 6 Mt in
1995.
Western Europe has been relying increasingly on coal imports to meet demand. However, imports have
been rising less rapidly than the fall in western European coal production. In the short term, western
European coal imports are expected to rise only at moderate rates of around 2% annually. In central and
eastern Europe, including the countries of the former Soviet Union, coal import demand is forecast to grow
but overseas suppliers are only slowly penetrating into this part of the world coal market because the
financing of coal import supplies is a problem.
By the year 2000, the Asia-Pacific region is expected to be the major coal growth market in the world.
The growing import demand will be met chiefly by exporters from the region. Australia is expected to
remain the world's top coal exporting country.
Concerns about climate change challenging coal
The UN/ECE survey states that the commitment of an increasing number of countries worldwide to
improving environment and climate protection is expected to challenge the use of coal in all parts of the
world, especially the United Nations Framework Convention on Climate Change will be a strong driving
force for coal substitution in countries which can afford to reduce and phase out coal production and coal
use. Now that clean coal technologies are available to restrict the harmful impact of coal production and
use, their urgent application will be essential for asserting a role for coal in a sustainable energy
development. The UN/ECE secretariat has recently launched the Clean Coal Implementation Programme
to promote clean coal technology use in its member countries, since without technical and financial
assistance, for many countries in Europe and elsewhere clean coal will remain a luxury which they cannot
afford.