The world's coal consumption has increased used as a source of energy since the soaring prices of oil in 2008. Coal trade grew sharply in the world notably since 2009.
The increase in coal market followed growing demand especially from China and India, two large economies which are growing fast amid the global economic slowdown. Increase was also recorded in coal demand in ASEAN as countries in this region are also seeking cheaper energy as alternative to expensive oil.
In the past five years, coal trade volume has shot up from 755 million tons in 2004 to 938 million tons in 2010. Meanwhile, the world's coal consumption was estimated to reach 7,586 million tons in 2011.
The type of steam coal, which is used as boiler fuel or to generate electricity has been growing more dominant in coal trade in the world. In 2000, trade of steam coal in the world totaled only 421 million tons, but in 2010, the figure shot up to 668 million tons.
Meanwhile trade of coking coal, which is used widely in iron smelters totaled only 188 million tons in 2000, growing more moderately to 270 million tons in 2010.
Indonesia second largest coal exporter in the world
Indonesia has boosted its coal exports taking advantage of the growing demand in the world market placing itself the world's second largest exporter after Australia.China and South Africa fell in position among coal exporters as the two countries have curbed exports to meet growing domestic demand.
Other countries continuing to boost coal exports include Colombia, Russia and the United States.
Japan is the world's largest coal importing country. Japan is one of major industrialized economies heavily dependent on imports for sources of energy including oil, gas and coal. In 2010, that country's coal imports totaled 187 million tons.
China, which is the world's largest coal producer and previously was a major coal suppliers to the world market, now has become a net importer because of fast growing domestic requirement. India is also one of a big coal producers , but rapid economic growth necessitating larger coal supplies.
Indonesia, the second largest coal exporter, is only the seventh largest among coal producing countries. The largest is China with production of 3.52 billion tons of coal in 2010, but it is also the largest consumer of coal in the world, followed by South Korea and India.
The world's coal production was estimated at 7,586 million tons in 2011, down 4.9% from 7,985 million tons in the previous year. The production did not include brown coal or lignite which has low calorific value.
China and the United States are both world's largest producers and at the same time largest consumers of coal. In 2010, China's coal production reached 3.52 billion tons and United States produced 1.08 billion tons. Most of their coal production is for domestic consumption. Indonesia's coal production is not very big but it is the second largest exporter of that commodity as most of its production is exported. The country, however, begins to curb exports to meet growing domestic demand especially for power plants of state electric company PLN. PLN is building coal-fired power plants with a total capacity of 10,000 megawatts. The program in the electricity sector will continue that coal consumption in the country is expected to grow faster especially as most new cement plants and steel factories use coal for fuel.
World's coal consumption
According to the EIA, world's total coal consumption reached 7.58 billion tons in 2011, or down 4.9 % from 7.98 billion tons in 2010.
In 2012, the world's coal consumption is forecast to rise to 7.98 billion tons, or an increase of 5.5% from 2011.
The largest coal consumer is China reaching 3.54 billion tons or around 46.7% of the world's total consumption in 2011. The second largest consumer is the United States with consumption of 977 million tons or around 12.9% of the world's consumption.
The United States holds the largest coal reserves, accounting for 27.1% of the world's total coal reserves, followed by Russia, China and India. World's proven coal reserves, according to the World Energy Council in 2008 totaled 860 billion tons, and 246 billion tons of which are in the United States, which has the largest proven coal reserves in the world.
Based on data of the World Energy Council, Indonesia had only proven coal reserves of 5.3 billion tons in 2008 or 0.6% of the world's proven reserves. The Energy and Mineral Resources Ministry, however, said the country had proven reserves totaling 6.9 billion tons in 2008. Later in 2011, after intensive explorations, the proven reserve grew to 21.13 billion tons. Explorations have been brisker to follow growing demand as a result of the soaring oil prices.
Types and specifications of coal
The types of coal include hard coal and brown coal each with different characteristics. Following are the types of coal found in Indonesia.
Hard coal, is one having calorific value of more than 5700 kcal/kg (23.26 MJ/kg). Hard coal includes steam coal, coking coal, bituminous coal and anthracite.
Brown coal is one with low calorific value including lignite and sub-bituminous coal. This type of coal is generally used to fuel power plants.
Steam coal is one used by boilers/steam generators and hearths, and stoves. The type of steam coal includes anthracite and bituminous coal with gross calorific value larger than 23,865 kJ/kg (5700 kcal/kg) and lower than that of coking coal.
Coking coal is one used widely to produce coke as a reductant at steel blast furnace. The gross calorific value of coking coal is larger than 23,865 kJ/kg (5700 kcal/kg) free from ashes.
Sub-bituminous coal is one having gross calorific value from 17,435 kJ/kg (4165 kcal/kg) to 23,860 kJ/kg (5700 kcal/kg).
Anthracite is coal with the highest quality having the highest calorific value of more than 6900 kcal per kg. This type of coal has similar characteristic as those of steam coal.
Lignite is coal having gross calorific value of less than 4,165 kcal/kg (17.44 MJ/kg) with volatile matter more than 31% in dry condition. Lignite is often called Low Rank Coal or Brown Coal.
Coke is the result of carbonization of steam coal at a high temperature used as a reducing agent in iron ore smelter (blast furnace).
Most of coal reserves in Indonesia are of tertiary age formed around 65 million years ago. Most or 83% of them consists of brown coal included in the category of lignite to sub-bituminous coal with bituminous coal and anthracite making up a smaller part or less than 20%.
Indonesian coal is known to have low content of ashes and sulfur, therefore, most of the country's coal is more valuable if used as fuel or as steam coal causing less pollution.
South Sumatra has he largest coal deposits
Coal resources in Indonesia are found in a number of big islands such as Sumatra, Kalimantan, Java, Sulawesi and Papua. Sumatra and Kalimantan have he largest resources . Based on data in 2011 at the geology and mineral resources directorate general, Sumatra has a total coal resource of 52.483 billion tons and Kalimantan 52.326 billion tons.
According to the data at the energy and mineral resources ministry in 2011 Indonesia's coal resources reached 105.1 billion tons, but only 21.113 billion tons were categorized as proven reserves or deposits that are commercially feasible to be exploited. The size of the proven deposits depend on the coal prices. The higher the price the larger the proven deposits will be.
Currently, the largest proven reserves of coal are found in South Sumatra. Reaching 9.54 billion tons. State coal mining company PT Tambang Batu Bara Bukit Asma has the largest coal mines in this province located at Bukit Asam.
Other provinces having large coal reserves are East Kalimantan and South Kalimantan where the mines are owned by big miners including PT Adaro, PT Kaltim Prima Coal, PT Arutmin, etc.
Contract of work replaced
Coal mining industry has expanded rapidly since 1983 when the government invited both foreign investors and domestic private investors to take part in exploiting the country's mineral wealth including coal under Contract of Work (CoW) scheme. Previously coal mining was monopolized by two state companies which are later were merged into one PT Tambang Batubara Bukit Asam (PT BA).
Contract of work of the first generation was signed in 1983 involving 10 companies and currently 9 of them have been operational and become the largest coal producers in Indonesia such as PT Adaro, PT Kaltim Prima Coal, PT Arutmin, etc. The second generation CoW was signed between 1993 -1996 involving 18 companies including 8 now operational and 4 no longer active or having their licenses cancelled.
In 1996, through the presidential decree No. 75/1996, the government renewed the system of coal mining contract concerning investment aspect through deregulation, simplification of bureaucracy and contract. Contract agreement was changed from Coal Cooperation Contract (CCC) with Coal Contract of Work (CCOW), for coal contractors both with the status of foreign investment (PMA) and domestic investment (PMDN).
Currently the era of contract of work has ended after the House of Representatives approved the Law on Mineral and Coal Mining in January, 2009. The law No. 4 of 2009 put an end to the era of contract of work in mining industry in Indonesia after 41 years. The new law replaced the law on mining No.11 of 1967. Through the new law the government issues license for mining operations.
The change in the form of management to licensing is important as being the licensing authority the position of the state is higher than mining companies. Under the contract of work the mining companies are at the same level as hat of he state that any change in the contract will need approval from both sides.
The Law on mineral and coal also makes clear decentralization of authority in mining management. The provincial, regency and city administrations also have the authority to issue mining license in heir respective areas.
The law on minerals and coal also recognizes the existence of people's mining activities. Another crucial matter under the new law is that mining companies are required to have their products processed in the country before being exported. They either build their own factories or have other companies to processed their raw minerals. With the law exports of raw minerals will be banned.
However, there are still controversies over parts a, b and c of article 169 of the law that becomes polemic among observers. The part a of article 169 says when he law is effective contract of work and coal mining working agreement will remain effective until heir expiration.
Many observers see that article as discriminative against new contractors, which are facing tight restrictions while old contractors, which are considered exploitative continue to enjoy certain incentives at least until their contracts expire. Part a of article 169 is seen as giving protection for the old CoW holders.
Control over coal resources
Most known coal resources are controlled by holders of CoW of first generation like PT Adaro, PT Arutmin, PT Berau, PT Kaltim Prima Coal and PT Tambang Batubara Bukit Asam.
Holders of contract of work of third generation having resources of more than 1 billion tons are PT Pendopo Energi Batubara in South Sumatra and PT Yamabhumi Palaka in West Kalimantan, but the two companies have not been commercially operational. They are still in the process of explorations..
PT Yamabhumi is the only holder of CoW in West Kalimantan discovering coal resource of 4.21 billion tons, much larger than the official data issued by the geology and mineral resources directorate general that in January 2004, that province had only coal resources of 527 million tons.
Coal production up 12.4% per year
In the past 10 years, the country's coal production has increased rapidly. In the period of 2002-2011, the country's coal production grew 12.4% a year from 104.2 million tons to 290.0 million tons. Demand for coal is growing with he soaring prices of oil as many countries have used coal instead of oil for fuel. The growing demand has boosted coal production in Indonesia mainly for exports.
Indonesia's coal is good for fuel especially to fuel power plants because of relatively low sulfur content, therefore, causing less pollution. Demand for coal is expected to grow in the country especially from power plants of PLN.
According to the Indonesian Coal Mining Association, in 2012 the country's coal production is projected to rise 10% to 380 million tons. The country exports 70% - 80% of its coal production.
Production by provinces
Kalimantan contributes more than 90% to the country's total coal production. By province, East Kalimantan is the largest producer accounting for 162 million tons of the country's total production in 2011.
South Sumatra has large coal resource but the resources are not yet sufficiently exploited. PT BA is the only large coal producer in that region.
Production by companies
Coal production in Indonesia is dominated by six large producers accounting for more than 80% of the country's total production. The largest producer Bumi Resources Group with subsidiaries KPC, Arutmin and Berau Coal recorded production of 94 million tons in 2011 or 32.4% of the country's total coal production.
Individually the largest producer is PT Adaro Indonesia with production of 48 million tons in 2011, followed by PT KPC with production of 41 million tons, and PT. Arutmin 33 million tons.