China Lights, Global Floods, Australian Coal

One detects a slow, ironic hooray welling up from the climate change community this week because after a year of intense weather that’s devastated food crops worldwide now an epic flood in Australia threatens to cripple the production of coal. Accounting for 30% of global energy supply–and ready to go higher as oil supply declines–coal was thought to be permanently relegated to the 19th century only a decade ago. Now, however, coal is the go-to energy source of the developing world, the 5 billion people now passing through the gears of industrialism. And Australian coal, both thermal and metallurgical, is called upon heavily to feed this soaring demand. But as flooding in Queensland, Australia’s northern coal country, spreads over an area as large 350,000 square miles, what will happen to coal production and the export of coal?

One country asking that question today is China. Over the past 10 years developing world coal-consumption growth has been rising by nearly 7.5% per year. The majority of that growth has come from China, which uses metallurgical coal to make steel and thermal coal to stay warm, and keep the lights on. This NASA Earth Observatory shot (shown below) was taken just last week, and covers the Beijing-Tianjin axis. The 35-40 million people here under the gaze of NASA’s satellite are drawing their electricity from coal because that’s what powers China. Not oil, not solar, not wind, but coal.

Over 70% of China’s economy is funded by coal energy. Moreover, if developing world coal demand growth is advancing at nearly 7.5% per year, then obviously that makes for a doubling of coal demand every ten years. And that’s exactly what took place over the past decade. Can China and the other emerging markets double their coal consumption a second time, this coming decade? The nightmare of a world transitioning back to coal is no longer just a subject for discussion at Copenhagen, or Cancun. It’s not just climate change activists who are alarmed by the heady production of worldwide CO2, or the extreme weather events now associated with global warming. Munich Re reported on Monday that 2010 was one of the most loss-intensive years since 1980, for natural catastrophes. More importantly, landslides, storms, super-fires, and floods featured prominently in the details of the Munich Re report.

And now comes the Australian flood. Like a film released too late for consideration in the 2010 class of catastrophes, the massive deluge which will not only affect coal exports but also wheat supply will no doubt feature prominently in Munich Re’s 2011 report next year. Below is just a detail of the massive Bowen Basin, capturing some of the big export facilities from Abbot Point to Dalrymple Bay. Coal observers, and coal investors, will know that Australia has been going through an infrastructure upgrade cycle the past ten years that has significantly boosted the volumes from this coast. But that is not going to be of much help now, as companies from Rio Tinto, Peabody, and Anglo-American have declared force-majeure on coal shipments, and the list is growing.

Concern is no doubt growing across Asia. Coal prices were already in a strong upswing the past six months prior to this event. Worse, pressure had been forming in China’s power sector since late Autumn, driving small industry owners to fire up their diesel generators which triggered a knock-on effect to global distillate prices. Cold, northern-hemisphere temperatures have further aggravated the situation driving the price of European Gasoil to recent highs, along with Brent oil. In other words, both the developing world–hooked on coal–and the developed world with its leverage to oil are now in this together. Even the normally complacent IEA in Paris is raising its voice, now admitting the new levels in oil prices are a threat to a recovery.

The points of contact between global coal and oil, therefore, are a bit more numerous than most might imagine. Not only did a crimp on electrical power in China drive demand towards diesel, but the Australian floods are going to pressure both thermal and metallurgical coal as users will be more flexible–in the face of pressured supply–how they use the two grades. Already, NYMEX thermal coal (CAPP) contracts have risen from 71.00 towards 80.00 in the past two weeks. Pressure on thermal coal will only add to pressures on global distillate prices. And so on. What’s more intriguing to speculate now, given that rising oil and coal prices are a given into Spring, is the broader question: how frequently in the future will energy extraction be impaired by global warming?


Images: NASA Earth Observatory: Cities at Night, Northern China, December 2010. H/T to @maoxian who sent me the photo, and remarked he was thinking of coal when he saw those lights. | The Government of Queensland–>Queensland Coal Maps: Central Queensland coal mines and identified deposits (PDF, 135 kB).

Updated 06 January: Further Reading:

Climate Progress: Munich Re: “The only plausible explanation for the rise in weather-related catastrophes is climate change.”

Roger Pielke’s Blog: Signals of Anthropogenic Climate Change in Disaster Data.

  • @Geek Boy

    Excellent article, thanks Gregor.

  • While the map shown covers the Central Qld coalfields, the Southern Qld coalfields (Surat & Clarence-Morton basins) are effected too. Can report that the coal stock piles at the New Acland (New Hope Corp. Ltd.) mine’s coal loader (Road to Rail) are considerably lower than usual.

    Can confirm wheat badly effected. The wet weather since September has delayed harvesting. Wheat often harvested by Melbourne Cup Day (first Tuesday in November) is still in the field. This flooding is the last nail in the coffin for anything not already harvested.

    Cotton is also affected. Friends of the family have lost most of the their crop at Dalby. The flood peak on the Condamine-Balonne is currently reaching St George another major cotton producing area. Central Queensland cotton production areaa are affected too, at places like Emerald.

    Note, the basins shown on the coal maps are geologic basins (Bowen, Surat & Clarence-Morton), the river basins (Fitzroy, Dawson, Burnett, Condamine-Balonne) are geographic basins. These are overlapping systems. That make connecting news reports to coal provinces that bit more difficult.


    Thanks Noel. Yes, in the links I provide and in the discussion I assume the reader will understand the affected area is much larger than the small map-detail provided here.

    From an economic perspective, what I’m keen to start analyzing now is how much extra pressure this will create for the inflation/crack-up boom that I already anticipate coming in mid 2011. To this point I am watching thermal coal prices and gasoil as we still have another 8 solid weeks of winter.




    Cheers. These are huge subjects that are barely covered in 700 words. Alas, I tried. :-0


  • Hi Gregor, thanks for the write up. Was referring to the large pdf map in the link. No criticism intended. Just highlighting that the southern coalfields are effected too. You do well to pick up the wheat implication, most coverage miss that.

    Rockhampton is by far the biggest city affected. That’s were the media coverage is centred. Now that coal is effected we might get more that the usual govt disaster PR from the fed & state govts.

  • Ian

    Queensland is something like 50% of the seaborne met market and maybe 10% of the global seaborne thermal market. If the flooding is really bad we might see a return to $300 met sooner rather than later.

    Ironically the longer term supply situation for met and thermal looks much better than oil (which is not saying much).


    Thankyou. Yes, I have seen the calls coming in now for 300+ met. One thing to consider is that when met gets that high, it pulls on higher BTU thermal. This is, when run through the turnstile of developing world switching capabilities between coal and distillate, then gets into the global distillate markets. And yes, I agree with you regarding supply for coal vs oil. While I dispute–as do others–the Patzek Peak coal thesis for 2011 I doubt very much we can exit this coming decade without reaching the final limits in coal production.


  • Ian

    Not sure about Peak Coal in 2011. Although after the close this afternoon Massey cut its fourth quarter production guidance by 10%ish, which isn’t helpful to the current supply problem.

  • C185pilot

    2011 may well be the year of supply problems/but not money supply problems. Southern hemisphere crops look problematic. Floods in Australia–drought in Argentina–and mad soybeans in Brazil. Food supplies will depend upon very good weather conditions in the US and Canada. Coal
    supplies look to be running low–only North American natural gas is plentiful. The likelihood is for a
    lot of inflation

  • You need this map Gregor in here.

    Puts things in perspective against UK and Ireland. That’s big country out there.

    Size of disaster and the stories have yet to be fully appreciated.

    Next imagery from this event – will be coal ships lined up waiting for their fill.

  • ….and one day shortage of diesel supplies will impact on coal supplies as the mining industry is heavily dependent on oil. There will be big fights between agriculture and mining. The winner will be agriculture because we eat food, not coal. A dramatic reduction in unnecessary electricity consumption for luxury consumer products will be a first step in OECD countries. And electric cars to solve the peak oil problem is the last thing we need. My website is crudeoilpeak.