Friday, May 23, 2008

NYT: As Oil Prices Rise, Nations Revive Coal Mining

Much like healthier eating will go out the door for many Americans (not by choice) as food prices increase and squeeze many middle and lower income people downstream towards cheaper fare, so will go out the door environmental concerns the higher (and higher) crude oil prices go. In the end, the harsh reality of economics trumps everything. (again, crude oil is due for a pullback, in fact a serious one, but my theme is much longer term in nature - years/decade) I can only wonder how "resistant" we will be to drilling offshore in America if/when crude crosses $200. Suddenly, the environmental concerns will be thrown to the side... at the right price (pain)....count on it.

The NYTimes has a story on this trend in respect to coal - we continue down our "World of Shortages" theme; too many humans on the planet; and too many humans wanting to live 1st world lives. Every once deserted ounce of "energy source" is going to be revisited if it's at all economical - and the higher oil goes, the more things that become economical. Especially as shipping said energy becomes even more expensive, sourcing close to home will be even more important. Supply/demand 101. But it will be a pebble in the ocean if 1 billion Asians continue their migration into cities from the farmlands over the coming decades. Solutions such as electric cars... well, they still need another form of energy to keep recharging....

Now in the bigger picture of it all, while positive to feeding the shortage of global energy, one must ask what the environmental impact (coal coal coal) is as economics trumps all. The locusts called humans continue to ravage this planet. Hurry up wind and solar... we need you. Now. And no I am not a Mr Greenie - I'm a startled economist at heart frightened about the outlook for the future, living in a country which consumes 25% of the globe's energy (with 5% of the people) yet oblivious to this paradigm, which brings oil executives to its Congress to grill, while trying to fight off solar subsidies.... nice. Oh well, let's just hope it has nothing to do with supply and demand and we can blame it all on the Strategic Petroleum Reserve and "speculators". The "crossing our fingers and hoping" solution has been one we've been relying on many things (see Medicare in about a decade).
  • These rugged green mountains, once home to one of Asia’s most productive coal regions, are littered with abandoned mines and decaying towns — backwaters of an economy of bullet trains and hybrid cars. But after decades of seemingly terminal decline, Japan’s coal country is stirring again. With energy prices reaching record highs — oil settled above $135 a barrel on Thursday — Japan’s high-cost mines are suddenly competitive again, and demand for their coal is booming. Production has jumped to its highest in nearly four decades, creating a sensation rarely felt in these mining communities: hope.
  • Soaring commodity prices have had distorting effects across the global economy, driving up food prices and prompting fears of future energy shortages. But they have been an unanticipated boon to the coal producing regions of countries like Japan that had written off coal mining as a relic of the Industrial Revolution.
  • While Japan’s coal industry remains tiny, its revival is an example of how higher commodity prices are driving a search for resources even in some of the world’s most urbanized and developed nations.
  • South Korea has experienced calls to create a domestic coal industry in order to reduce dependence on imports. In the United Kingdom, where coal’s decline became a symbol of withered industrial might, companies are increasing production and considering reopening at least one closed mine as demand for British coal rises.
  • For decades, Japanese coal, at $100 or more a ton, was simply too expensive because of high wages and extraction costs. But with global prices now reaching the same heights, Japanese coal is looking more attractive.
  • But the industry’s long decline has made it difficult to gear up. There are almost no geologists left in Japan specializing in coal, or recent surveys of coal deposits in the region. To conduct its search, Hokuryo is relying on a stack of torn, yellowed maps hand-drawn by company geologists more than 40 years ago.
  • Other changes in the last four decades could also hamper efforts to increase production. Hokuryo and other companies say they can no longer build large underground mines because no Japanese worker would want to work in such dark and dangerous conditions today. (well it's a flat world, you can always import workers from poorer countries - it works great for the Saudis - and Americans aka those Mexicans will do work that no American will do?)
  • At the same time, environmental regulations prevent most strip-mining, which creates huge open pits that can be eyesores. There have been proposals to raise production using new, untested technologies like pumping in water or heat to liquefy coal so it can be sucked it out of the ground like oil.
  • Even if such technologies worked, no one is expecting Japan to become self-sufficient in coal anytime soon. Domestic coal production contributes only 0.8 percent of the total coal consumed by Japan. Still, there is enormous potential: Sorachi, the region that includes Bibai, sits on an estimated six billion tons of coal, enough to supply Japan’s current level of use for 30 years.
Quite frankly it is amazing how everything is increasingly becoming reliant on the lynchpin that is Chindia growth. So many implications, both positive and negative, all from this 1 megatrend. Interesting times. Interesting times indeed.

Long a few coal stocks here or there... (or everywhere)

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