Black Coal

Please note that this page is currently under review.

Resource figures are current as at 31 December 2016.

Coal is a sedimentary rock formed from peat that has been subjected to temperature, pressure and microbial action over millions of years. Over time, coal progresses in rank from lignite, to sub-bituminous coal, to bituminous coal and finally to anthracite; a process known as coalification. As the coal increases in rank, the carbon content - and hence the energy content - increases, whilst the moisture content decreases. In Australia, sub-bituminous, bituminous and anthracite are collectively referred to as black coal, whilst lignite is referred to as brown coal (in Europe, sub-bituminous coal is also considered to be brown coal).

The majority of the black coal mined in Australia belongs to the bituminous category, and is produced either in Queensland or New South Wales. Australian black coal is used predominately as (1) thermal coal, also called steaming coal, for electricity generation and (2) coking coal, also called metallurgical coal, in the iron and steel industries. Black coal is also used in cement manufacture, alumina refining, paper manufacture and for other industrial purposes.

JORC Reserves

As at December 2016, Proved and Probable Ore Reserves of black coal reported in compliance with the JORC Code amounted to 19 800 Mt (Table 1), of which 12 243 Mt was attributable to 93 operating mines (Table 2). Australia produced 566.3 Mt of black coal in 2016, 5% up from 2015 levels (539 Mt; Table 1). Conversely, during 2016, China reduced coal production and world prices consequently rose due to increased activity in the import market. Higher prices resulted in reduced demand and overall global coal production fell by 6.2% during 2016. According to BP plc, this is the largest decline on record¹.

Over the last 15 years, it can be seen in Figure 1 that Ore Reserves declined from 2002 to 2005 and then rapidly increased until 2012 from which point, they have been at similar levels each year. In 2016, Australia mined 566.3 Mt of black coal (Table 1), a small fraction of the Ore Reserves at currently operating mines (5%) and a smaller percentage of total Ore Reserves (3%). Indeed, Figure 1 shows that over the last 15 years of mining, cumulative production (6781 Mt) amounts to only 39% of the 2002 Ore Reserve (17 400 Mt), yet the Ore Reserve is greater today than it was then, indicating that the exploited coal has been replaced in the inventory and more added.

However, while Ore Reserves have risen over the last 15 years, production has increased at a faster rate (Figure 1). Ore Reserves of black coal have increased by 14% since 2002 but production has increased 63% from 348 Mt to 566 Mt, over the same time period. As a ratio, production has increased from 2% of the Ore Reserve in 2002 to 3% in 2016, but it has fallen from the high of 3.4% in 2007.

Figure 1. Black coal Ore Reserves and annual production 2002-2016, as well as cumulative production since each year. LHS/RHS = refer to axis on left-hand side/right-hand side.

Identified Resources

In 2016, the estimate of Australia's in situ Economic Demonstrated Resources (EDR) of black coal was revised upward to 85 753 Mt, an increase of almost 3% from the previous year (Table 3). Of this, 70 927 Mt is considered to be recoverable², which is a 4% increase from 2015 (Table 4).

In 2016, EDR for black coal increased at 26 deposits and decreased at 39 deposits, with most decreases owing to small quantities of mine depletion. There were six increases and two decreases greater than 100 Mt, with resource upgrades resulting in a net increase in EDR of 2617 Mt of black coal. Large additions to EDR came from four deposits in the Sydney Basin: Dartbrook (Australian Pacific Coal Ltd), Mount Arthur (BHP Billiton Ltd), Mount Thorley (Rio Tinto Ltd) and Warkworth (Rio Tinto Ltd). In the Bowen Basin, a BHP Billiton Ltd/Mitsubishi Corporation joint venture reported large additions to EDR at Goonyella, Peak Downs, Peak Downs East and Saraji East. In the Galilee Basin, the Milray project (Glencore plc) also reported increased EDR.

In addition, Australia has 104 151 Mt of in situ Inferred Resources (Table 3) with 81 864 estimated to be recoverable (Table 4). In 2016, Inferred Resources of recoverable black coal increased by 3149 Mt or 4 per cent, with six increases and three decreases greater than 100 Mt. Large contributions to Inferred Resources from the Bowen Basin included Peak Downs and Peak Downs East and in the Surat Basin, the Columboola (Metro Mining Ltd) and Clifford (Stanmore Coal Ltd) projects reported large increases. In the Sydney Basin, Dartbrook (Australian Pacific Coal) and the United Wambo project (Glencore) also reported large increases in Inferred Resources. In 2016, the Hutton coking coal project (Valiant Resources Ltd) in the Bowen Basin reported a maiden in situ resource of 627.1 Mt of Indicated Resources and 4027.3 Mt Inferred Resources.

As at December 2016, Australia also had an estimated 4833 Mt of recoverable black coal considered subeconomic, along with 6882 Mt considered inaccessible (Table 4).

Figure 2, also demonstrates the vast inventory of black coal in Australia by showing that even over the longer time period of 40 years, cumulative production (11 631 Mt) has only mined out 60% of the 19 500 Mt of resources assessed as economic in 1975. But as with Figure 1 showing Ore Reserves, Figure 3 also shows that black coal production has increased more rapidly than the inventory. In 1975, black coal production was 61 Mt which rose to 566 Mt in 2016, an increase of more than 800% but recoverable black coal EDR has increased only 264% over the same 40-year period (19 500 Mt in 1975 to 70 927 Mt in 2016). As a ratio, annual production of black coal as a percentage of EDR has increased from 0.3% in 1975 to 0.8% in 2016.

While the increase in production has been more or less regular, the coal inventory has ebbed and flowed (Figure 2, Figure 3). Between 1998 and 2007, EDR for black coal declined due to the impact of increased rates of mine production and mining companies re-estimating Ore Reserves and Mineral Resources more conservatively to comply with requirements of the JORC Code. From 2008 onwards, black coal EDR increased significantly because of the discovery and delineation of additional resources as a result of high levels of exploration and through reclassification of resources.

Figure 2. Economic Demonstrated Resources of black coal 1975-2016, as well as cumulative production since each year.

Figure 3. Trends in total resources, Economic Demonstrated Resources, Ore Reserves and annual production of black coal, 1975-2016. LHS/RHS = refer to axis on left-hand side/right-hand side.

Most of Australia's black coal EDR is located in Queensland (61%) and New South Wales (36%). Of this, 34% and 29% of recoverable EDR are located in the Bowen (Queensland) and Sydney (New South Wales) basins, respectively. These basins also dominate black coal production. Significant black coal resources are also found in the Surat (12%), Galilee (9%) and Tarong (3%) basins in Queensland and in the Gunnedah Basin (3%) in New South Wales.

Price and Demand

Australia is the largest exporter of coal in the world with 389.3 Mt exported during 2016³.

Major importers of Australian metallurgical coal are India, Japan and China. Major importers of Australian thermal coal are Japan, China, South Korea and Taiwan⁴. World coal trade is expected to continue to increase until 2040 and Australia has significant resources of high quality black coal. The proximity of Asian markets, where demand is expected to grow, is expected to contribute to market share maintenance⁵.

Prices improved in 2016 compared to 2015: the Premium Hard Coking Coal contract price started at US$81/t and finished at US$200/t with spot prices reaching a peak of over US$300/t in November due to production restrictions in China and a resulting increase in demand. Pulverised Coal Injection (PCI) is used widely in steel-making; the finely ground coal acts as an energy source and a reductant in order to reduce the amount of coke required during the steel-production process. During 2016, the Low Volatile PCI contract price was US$69/t at the start of the year, increasing to US$156/t at the end. The spot price reached a peak of more than US$180/t in November. Semi-soft coking coal is also used in steel-making; it is blended with more-expensive hard coking coals to reduce costs. During 2016, the Semi-Soft Coking Coal contract price started at US$66/t, increasing to US$130/t at the end of the year with spot prices reaching more than US$140/t in November. The average Newcastle 6300 GAR⁶ Thermal Coal Contract price was US$61.60/t, with spot prices reaching over US$100/t in November⁷.

Historic price spikes, in 2008 and 2011, were related to flooding in Queensland and the ensuing supply restrictions.

Exploration

Exploration expenditure in Australia has been falling and is linked to the falling coal price. Coal exploration expenditure reached a high of $757 million in 2011. Expenditure in 2015 and 2016 was $213 million and $124 million, respectively, indicating a further year-on-year decline of 58%. In this period, as in previous periods, expenditure on coal exploration occurred almost exclusively in Queensland (67.1%) and New South Wales (28.8%). The decline in Australian expenditure on coal exploration is correlated with the fall in coal price, demonstrating some of the impact the low coal price has had on industry activity. The Energy in Australia 2015 publication suggests that lower exploration expenditure may also be related to a shift from investment to production in the mining boom⁸.

Production and Trade

The two largest producing black coal basins, by far, are the Bowen and Sydney basins. At 2016 production levels, Australia's current recoverable EDR of black coal is expected to last 125 years.

Australia is a major coal producer ranking behind China, United States and India in overall coal production. In 2016, the majority of coal was produced in Queensland (55%) and New South Wales (43%), leaving 2% to other Australian jurisdictions. In both 2015 and 2016, 78% of coal production came from open-cut mines, and 22% from underground mines⁹. In 2016, Australia produced 440 Mt of saleable black coal (or 567 Mt of raw coal) and, in 2015, produced 446 Mt of saleable black coal (or 567 Mt of raw coal)¹⁰.

World-wide, most coal is used for electricity generation: since 1990, Australian thermal coal production has grown from 94 Mt to 250 Mt in 2016¹¹, this is an increase of more than 250%. Recently, world thermal coal production has fallen from 6000 Mt in 2014 to 5800 Mt in 2015, and 5400 Mt in 2016.

World coking coal production fell in 2015 (and fell again in 2016) for the first time since 2002. Conversely, Mongolian coking coal production increased by 9.7 Mt to 22.8 Mt in 2016 due to increased demand from China¹². China, followed by Australia, is the worlds' largest producer of coking coal. Consumption of coal for PCI is increasing, with Japan and Korea the largest reported consumers. However China (and other economies) does not report PCI steel-making statistics and it is estimated that China uses more PCI than Japan and Korea together¹³. Australian coking coal production has grown from 65 Mt in 1990 to 189 Mt in 2016¹⁴; this is an increase of nearly 300%.

Almost all metallurgical coal is used in coke ovens: around 770 kg of coal is used to produce 1 t of steel when a basic oxygen furnace is used¹⁵. In addition to coking coal, Australia exports some metallurgical coke: although the amounts are confidential, the Office of the Chief Economist estimates that Australia exported 684 kt of coke during 2014-15¹⁶. During 2015, world coke-oven coke consumption was 678.8 Mt¹⁷, of which China accounts for 65%.

Overall, Australian coal production has increased, notwithstanding the declines seen in 2011 and 2016, to keep pace with different economic booms in Asian regions¹⁸. During 2016, total world coal trade was 1333.5 Mt¹⁹ and Australian exports of 389 Mt contributed 29% to world trade.

Domestic Coal Consumption

Coal fired generation accounted for 63% of Australia's electricity generation in 2016²⁰. Although coal use grew by 3% in 2015-16, due to increased use of coal for electricity generation, Australian coal consumption remains 17% lower than at its peak in 2008-09²¹.

Industry consumes the largest amount of the electricity (34% of total consumption) of any sector, noticeably during aluminium production. Commercial (31%) and residential (26%) users comprise the remaining major sectors²².

In 2016, New South Wales, Victoria and Queensland accounted for 92% of total coal-fired generation nationally²³. All three states have a high reliance on coal for electricity generation, whereas the rest of Australia has a relatively higher reliance on natural gas and renewable energy²⁴. In Victoria, lower-rank brown coal is used for energy generation. New South Wales and Queensland host the majority of Australia's black coal-fired generating capacity²⁵.

World Ranking

In 2016, Australia was ranked number one in the world for coal exports, was the fourth biggest producer after China, the USA and India, and was ranked fourth in terms of recoverable economic coal resources behind the USA, China and India. China is the largest consumer, producer and importer of coal. India is the second largest consumer, producer and importer of coal. As at December 2016, Australia had 152 791 Mt of identified recoverable black coal resources including inferred resources.

Nearly 90% of Australian black coal is exported to overseas consumers. In 2016, Australia ranked fourth overall for coal production, behind China, the United States and India. Australia was the sixth largest thermal coal producer, the second largest coking coal producer (after China) and the largest coking coal exporter.

During 2016, Australia produced 440 Mt of black coal, 389 Mt of which was exported for energy production or coke manufacture. The remaining 51 Mt was used domestically.

The value of Australian coal exports during 2015-16 was $34.5 billion; this was 22% of total resource and energy exports²⁶.

World Economic Resources

World economic resource data is affected by the different categorisation of sub-bituminous coal, which is classed as black coal in Australia but as brown coal in Europe. In addition, the term "reserves" in Australia specifically refers to a commercially demonstrated orebody reported in compliance with the JORC Code. In overseas jurisdictions, the term "reserves" is often used more generally and can usually be regarded as equivalent to Australian EDR.

In order for a comparison of world economic resources to be made, BP coal figures were used for Australia. BP estimates the world to have total proved reserves of coal²⁷ amounting to 1 139 000 Mt. According to the BP Statistical Review of World Energy 2017, as at 31 December 2016, Australia had 13% of the world's total proved coal reserves, and ranked fourth in terms of total recoverable economic coal reserves (black and brown coals together) behind the United States, the Russian Federation and China.

Industry Developments

Overall, during 2015, the coal industry experienced hardship as the coal price continued to decline. A range of coal companies, including large coal businesses, reported financial losses; considered or announced close-downs, cut-backs and sales of mining properties; and generally reported challenges with the prevailing conditions. Conditions improved during the latter half of 2016 partly due to supply restrictions and the International Energy Agency suggested that, although producers may experience reduced urgency to cut costs, supply discipline and price volatility will continue²⁸.

Citation

Bibliographical reference: Hughes, A., 2018. Australian Resource Reviews: Black Coal 2017. Geoscience Australia, Canberra. http://dx.doi.org/10.11636/9781925297980

References