Looking Good!

It’s amazing the difference a year can make. Just 12 short months ago, the winds of uncertainty dominated the world coal market. Having come off a 2008 that saw unprecedented prices and surging demands, 2009 rang in on the coattails of a global economic meltdown. The recession set in, energy use slumped and the manufacturing of fundamental building materials such as steel sharply declined. As a result, global demand for coal weakened.

“Coking coal contract prices for 2009 dropped by more than 50 per cent from record levels in 2008 but were still well above the levels of a decade ago,” says Allen Wright, President and CEO of the Coal Association of Canada.

Metallurgical, or coking coal is used in the production of steel. In Canada, metallurgical coal represents about 40 per cent of coal mined with the majority being exported to the world market.

“Towards the end of 2009 and into 2010 we’ve seen a recovery in demand and you can see that with metallurgical producers making preparations for an increase in growth and production.”

Wright says it is possible to double the current coal production level from British Columbia if all the proposed new mines and the expansion of existing mines happen. But to be successful will require the support of Governments.

Over the last year the B.C. Government has, for example, made an effort to make its permitting process more efficient and has also been encouraging the Federal Government to change its environmental legislation to eliminate duplication.

However, not all government actions have been helpful, according Wright.

“The province’s recent decision to ban mining, oil and gas and coal bed methane development in the Flathead Valley in southeast B.C. has done nothing to raise confidence levels, especially among investors,” says Wright. “B.C. has the most robust environmental process in the country and in southeast B.C., a Land Use plan was established in consultation with residents of the area, so why not let the process work.

“With the growing demand for coal, the opportunities are huge and the question now is can we get mines up and running to meet this current upcycle.”

Canada is the second largest exporter of seaborne coking coal in the world and the increase in demand on world markets for metallurgical coal is expected to remain steady in 2010 and well into 2011.

“The story of 2010 will be Asian steel mills continuing to power the economy and our industry out of recession,” says Wright.

Although traditionally not a major importer of Canadian coking coal, China has recently begun to import increasing quantities and the expectation is that that trend should continue.

With demand and a tightening of supply, producers have successfully negotiated contracts involving a new pricing mechanism with Asian steelmakers.

For the 2010 coal year, which runs from April 1 to March 31, prices for coking coal will be established on a quarterly basis. Traditionally, both coal volumes and prices have been set on an annual basis but that has all changed.

Australia’s BHP Billiton, the world’s largest coal producer and the company that typically sets the tone on coking coal pricing with Japanese steelmakers, earlier this year initiated the new quarterly pricing model. This has prompted other Canadian producers such as Teck Coal, Grande Cache Coal, Western Coal and Peace River Coal to follow suit.

“With growing demand and expected supply shortages, this new model allows for producers to capitalize on expected higher prices in the second and third quarters of 2010,” says Wright.

The current settlement price for hard coking coal is $200 per metric tonne and there is speculation that it may return to near 2008 levels before the end of the coal year, but China is the key.

What this means for Canadian producers is that production could rise from an estimated 21 million tonnes in 2009 to an estimated 26 million tonnes in 2010.

Not only is there a growing connection between Chinese steelmakers and Canadian metallurgical coal suppliers but there is a growing interest in Canadian export thermal coal to help meet China’s electricity needs.

Like metallurgical coal, there has been considerable volatility in the price of export thermal coal over the last year however, the growing demand from Asia and India is providing additional opportunity for Canadian thermal producers to increase their export volumes.

In 2009, Sherritt Coal re-opened its Obed mine in Alberta adding another 1.2 million tonnes to the volumes from Coal Valley. There are several other Canadian companies now looking to meet this increasing demand.

Hillsborough Resources, already with a thermal mine on Vancouver Island, is looking to develop its Wapiti property in northeast B.C. and Coalspur, a new entrant on the thermal scene, is looking to develop a new property in the Hinton area of Alberta for the export market as well.

Domestically, coal continues to be the fuel used to generate approximately 60 per cent of the electricity in Alberta, Saskatchewan and Nova Scotia. Over the last year, new coal plays have been occurring in Saskatchewan and Manitoba.

Goldsource Mines, a Vancouver-based company, has had some drilling success near Hudson’s Bay, and companies like NuCoal Energy, are heating up coal activities in Saskatchewan too.

There is also growing interest in doing in-situ coal gasification and coal-to-liquids with this coal and Saskatchewan is not the only province looking at these technologies.

Alberta’s Swan Hills Synfuels is currently doing an in-situ gasification project with the objective of providing a pure stream of CO2 for Enhanced Oil Recovery (EOR) and synthesis gas for a proposed new 300 megawatt (MW) clean electricity power plant.

One cannot talk about coal without addressing one of its most pressing challenges — the carbon footprint, both at the mine site and in its end use.

The industry is committed to reducing emissions whether through improved coal transportation systems, coal beneficiations or developing and commercializing technologies such as carbon capture and storage,

Today’s technologies range from sophisticated mining methods to techniques that allow coal to be burned cleaner and more efficiently.

At the mine site, technologies are being developed and implemented to make equipment more efficient .

“For Canada’s thermal coal industry to remain viable and competitive both domestically and internationally, it has to create and adopt innovative, efficient and sophisticated technologies,” says Wright. “Improvements have already led to a downward trend in emissions for many decades and 2010 will be no different.”

Meeting the sustainable development challenge is an ongoing process and the strong commitment to research and advancement of new technologies ensure that Canadian coal will be well placed to meet this challenge.

“Coming out on the other side of a worldwide recession, with increased demand for infrastructure and the necessity for steel and cement, along with our industries strong commitment to research and advancement of new, cleaner coal technologies on the thermal side, the Canadian coal industry is well placed to meet the challenge of future global coal demands,” says Wright. CMJ

*Based on information provided by The Coal Association of Canada.

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