Case 1: According to the British Petroleum Statistical Review

of World Energy, 2013, global coal reserves declined in the

decade ending 2012. Provide an explanation. Conclude with a
forecast of coal market conditions over the subsequent 5 to
10 years.
_________________________________________________________  
 
According  the  British  Petroleum  Statistical  Review  of  World  Energy,  2013  
global  coal  reserves1  have  fallen  984,453  million  tonnes  in  2002  to  860,938  
million  tonnes  in  2012.    This  represents  a  decrease  in  coal  preserves  of  
some  12.5%  over  that  ten-­‐year  time  period.      
 
New  fuel  supplies  and  superior  technologies  will  continue  to  displace  
coal  from  the  market  place.    While  coal  will  never  disappear  from  the  
global  fuel  scene,  it’s  importance  will  diminish  over  the  decades  to  come.    
 
This  is  largely  a  story  about  electrical  generation,  in  that  coal  remains  a  
significant  player  in  the  production  of  electricity  in  most  countries  around  
the  world.      
 
Causes  for  Decrease  of  Coal  Reserves  
Estimating  the  total  world  proven  reserves  (860,938mt),  and  knowing  the  
total  annual  global  consumption,  (something  in  the  order  of  3,730mt  in  
2012,)  simple  arithmetic  suggests  that  we  have  some  230  years  worth  of  
coal  in  the  ground,  given  current  consumption  levels.    (860,938/3700  =  
230)    Of  course  if  we  imagine  a  scenario  where  global  coal  consumption  
increases  at  a  rate  of  3%  per  year,  then  the  reserves  will  be  depleted  
quicker,  unless  more  reserves  are  proven.      
 
Exploration  for  new  coal  seems  unnecessary  at  this   Natural gas production continues to
time,  as  such  a  large  quantity  exists  for  our  needs.    Of   grow year-over-year
Despite lower prices and reduced drilling
course  without  continued  exploration  for  coal,  the   compared with a year ago, natural gas
reserves  will  continue  to  fall.       production in the United States is running
nearly 7% higher in 2015 than it was for
  the same period in 2014. Total U.S. pro-
Another  reason  coal  reserves  have  declined  is  the   duction growth continues to be driven by
regional shale production, concentrated
nature  of  competing  products,  especially  in  the   in the Marcellus area in Pennsylvania,
generation  of  electricity.    Large  quantities  of  natural   West Virginia, and Ohio.  

gas  have  come  into  the  market,  largely  from  

horizontal  drilling  and  hydraulic  fracturing  of  “tight”  
gas  (and  oil)  supplies  found  in  oil  shale.      

                                                                                                               
1    Coal  reserves  defined  as  commercially  extractable  coal,  from  known  [or  high  

confidence  estimates  of  reserves]  using  current  market  conditions  and  current  
technologies)    

Ed  Horner  –  Decreasing  Coal  Reserves  –  Analysis  –  July,  2015  

  
This  natural  gas,  being  cleaner  to  burn  and  price  competitive,  has  found  its  
way  to  gas-­‐fired  electrical  generation  plants  all  over  the  world,  but  
especially  in  the  US  where  conditions2  have  made  it’s  extraction  favorable.    
The  oil  shales  are  found  in  abundance  in  areas  not  typically  associated  with  
hydrocarbon  production.      
 
Examples  include  the  Bakken  shales  in  North  Dakota  or  the  Antrim  in  
Michigan.    Countries  like  Mexico  and  Pakistan  have  technically  
recoverable  oil  shales,  but  are  hampered  by  high  base  water  stress3  
levels,  which  make  them  unlikely  for  resource  extraction  given  
current  market  and  technology  conditions.      
 
Natural  gas  reserves  have  been  increasing  globally  over  the  same  ten-­‐year  
period  from  154.9  trillion  cubic  meters  to  187.3  trillion  and  increase  of  
some  17.3%.    If  we  look  back  to  1992,  we  see  global  gas  reserves  having  
risen  from  119  trillion  cubic  meters  to  today’s  levels  of  187.3  trillion  cubic  

meters  –  something  like  a  55%  increase.      

                                                                                                               
2    Environmental  Protection  Agency  and  the  Clean  Air  Act  have  been  putting  the  coal-­‐

fired  generation  of  electricity  under  ever  grater  regulation,  as  will  be  noted  on  page  2.  
3    Base  level  water  stress  can  be  defined  as  any  region  where  water  is  physically  scarce  

or  economically  scarce  or  both.    Physical  scarcity  is  the  result  of  a  lack  of  available  
water  to  meet  the  needs  of  the  local  population.    Economic  scarcity  is  perhaps  best  
defined  as  a  poor  water  management  and  distribution  program  for  any  given  region  –  
the  water  may  be  available,  but  at  a  price  that  makes  it  too  dear  for  anything  but  
subsistence  use.  

Ed  Horner  –  Decreasing  Coal  Reserves  –  Analysis  –  July,  2015  

  
Natural  Gas  Pricing  
As  can  be  seen  in  Figure  3  above,  relative  to  coal,  natural  gas  has  had  greater  
volatility  since  at  least  1994.    However,  in  January  of  2012,  the  price  of  NG  
met  or  fell  below  the  same  $/MMBtu  as  coal,  making  it  very  price  
competitive4  for  electricity  generation  while  providing  a  net  decrease  in  the  
CO2  emissions  that  the  US  Clean  Air  Act  has  been  tightening  up  on.      
 
Politics  and  Policies  -­‐  Regulation  and  the  US  Clean  Air  Act  (CAA)    
In  the  United  States,  The  Clean  Air  Act  or  CAA  and  it’s  various  amendments  
since  1970  have  been  putting  regulations  and  restrictions  in  place  on  
“stationary”  CO2  emitters.    As  these  emitters  are  identified  (in  this  
discussion  we’re  talking  about  fossil  fuel  fired  electrical  generation  plants)  
the  Environmental  Protection  Agency  (acting  under  the  CAA)  develops  New  
Source  Performance  Standards  or  NSPSs.    The  long  and  short  of  it  is  that  
coal-­‐fired  electrical  generation  plants  –  especially  new  ones  being  built  or  
planned  –  will  be  held  to  a  higher  standard  for  CO2 emissions  than  
previously  constructed  plants  and  this  means  that  the  “dirty”  coal  will  be  
displaced  by  “cleaner”  natural  gas.      
 
In  the  US,  this  means  that  there  will  be  (or  already  is)  a  good  and  steady  
market  demand  for  natural  gas  for  these  plants  which  will  provide  
confidence  for  investors  in  natural  gas  resource  exploration  and  extraction,  
especially  “tight”  gas,  which  the  US  seems  to  have  in  abundance.      
 
China  
At  present,  China  is  the  largest  
single  user  of  coal  for  
electrical  generation  in  the  
world  –consuming  about  50%  
of  global  production–  and  
most  projections  suggest  that  
this  isn’t  going  to  stop  any  
time  soon.    China’s  installed  
electrical  generating  capacity  
has  increased  from  some  
806gW  in  2008  to  1,174gW  in  
2012.    Most  of  that  has  been  
coal-­‐fired  plants.      
 
While  coal  consumption  and  
coal-­‐fired  electricity  generation  are  not  exactly  equivalent  measure,  they  are  
close  enough  for  the  purposes  of  comparison.    Below,  we  see  that  US  coal  
consumption  has  leveled  off  and  even  begun  to  fall,  while  the  Chinese  
                                                                                                               
4    In  2010$  

Ed  Horner  –  Decreasing  Coal  Reserves  –  Analysis  –  July,  2015  

numbers  continue  to  rise.    This  is  increase  is  largely  due  to  increasing  
numbers  of  coal-­‐fired  electricity  plants  being  built  in  China.      
 
But  even  with  this  dramatic  increase  in  Chinese  coal  consumption  (largely  
for  electrical  generation)  we  saw  a  2.9%  decrease  from  2013  to  2014.    This  
is  likely  explained  by  a  general  economic  slow-­‐down  of  the  region.    But,  
we’ve  also  seen  a  net  increase  in  the  percentage  of  electric  generation  via  
other  methods  –  especially  
wind  and,  of  course,  nuclear.    
As  China  looks  ahead  to  the  
year  2030,  their  mix  of  
electricity  generation  
continues  to  favor  coal,  but  
we  see  an  increase  in  both  
renewables  and  nuclear  
which  result  in  a  decrease  of  
coal  use  from  79%  in  2006  to  
75%  in  2030.      
 
Forecast  and  Conclusions  
 
Barring  some  major  
catastrophe  around  human  
health  and  population,  it’s  
pretty  much  a  given  that  
world  population  is  going  to  increase  from  the  current  7  billion  to  some  8  
billion  by  20305,  with  most  of  that  increase  coming  from  developing  
countries.    Each  of  those  people  will  want  and  need  access  to  affordable  and  
reliable  power  for  their  home,  businesses  and  personal  electronics.      
 
As  we  have  seen,  a  230-­‐year  supply  of  coal  reserves  and  historically,  
relatively  stable  prices,  ensures  that  coal  will  remain  an  important  
component  of  the  global  electricity  generation  mix  for  years  to  come.    Still,  
as  competitive  forms  of  energy  come  into  the  market,  such  as  natural  gas  
from  horizontal  drilling  and  hydraulic  fracturing,  wind  and  solar  power,    
global  coal  reserves  will  continue  to  decrease  over  the  next  five  to  ten  years,  
while  reserves  of  natural  gas  –especially  “tight”  gas–  will  continue  to    
increase.        
 

                                                                                                               
5
United  Nations  Department  of  Economic  and  Social  Affairs/Population  Division  1    
World  Population  to  2300    
 

Ed  Horner  –  Decreasing  Coal  Reserves  –  Analysis  –  July,  2015  

Add  to  this,  the  concerns  about  green  house  gas  emissions  from  coal-­‐fired  
electric  generation  plants  (and  the  as  yet  unproven  technology  of  deep  
ground  CO2  injection  for  carbon  sequestering)6  and  we  are  left  to  conclude  
that  coal  reserves  will  continue  to  decline  while  reserves  of  natural  gas  and  
the  use  of  renewables  will  continue  to  rise.      
 

                                                                                                               
6  Carbon  sequestration  describes  long-­‐term  storage  of  carbon  dioxide  or  other  forms  of  

carbon  to  either  mitigate  or  defer  global  warming  and  avoid  dangerous  climate  change.  
It  has  been  proposed  as  a  way  to  slow  the  atmospheric  and  marine  accumulation  of  
greenhouse  gases,  which  are  released  by  burning  fossil  fuels    –  Wickipedia.    While  a  
handful  of  carbon  sequestration  facilities  exist  –  notably  Norway’s  Sleipner  saline  
aquifer  and  North  Dakota’s  Weyburn-­‐Midale  Carbon  Dioxide  Project  –  there  is  no  wide  
spread,  commercially  viable  technologies  presently  being  undertaken.      
 

Ed  Horner  –  Decreasing  Coal  Reserves  –  Analysis  –  July,  2015