Old Energy for the Future: Coal Makes a Comeback -

Until recently the coal industry's days seemed numbered -- especially in Western nations, unable to compete with the low production costs in countries such as China and India. But now coal is experiencing what may be a lasting boom.


DPA
A Chinese coal miner takes a break at his workplace, 900 meters (2,952 feet) below the ground. Some 6,000 Chinese miners lose their lives at work every year, according to the Chinese government. The actual figure may be twice as high.The statue in front of the Eickhoff mine-equipment factory in North Germany looks desolate: Soot has blackened the miner's muscular torso, and the mallet in his hand looks like it belongs in a museum.
The statue is meant to recall the company's traditions, which stretch back to 1864. But it looks more like a memorial to the decline of German mining, an industry that 50 years ago still provided employment for 600,000 workers. That figure has now sunk to 35,000.
Talk to the managers at Eickhoff's company headquarters in Bochum, though, and the picture seems very different. Things have been looking up for the last few years. In one part of the factory, an Eickhoff SL 500 stands waiting for its final assembly. The shearer loader machine can break a million tons of black coal per month, making it one of the most powerful pieces of mining equipment in the world. The yellow steel hull and the colorful display on the control panel gleam in the light of the factory lamps. The lettering has just been applied -- in Chinese.
"Coal mining is booming again," says Eickhoff director Paul Rheinländer, who has come to watch the final stage of the assembly process. "We sold 50 shearer loaders to China in the last three years alone, bringing our annual turnover up to €20 million ($25 million)."
Eickhoff's history illustrates well the dramatic recent changes in the coal mining industry, from the decline of Germany's Ruhr region -- once the heartland of German mining -- to the industry's new, booming business in distant lands.
As recently as the 1980s, the company employed a good 2,000 workers and sold every other machine it produced to a German customer. Then the employment figures plummeted and Eickhoff sacked more than half of its workers.
But for several years now the company has been clinching more business deals, making bigger profits and employing more workers. The family business from the Ruhr valley has rapidly become a company that exports about 90 percent of the equipment used in black coal mining -- mainly to China, Australia and Russia.
A hot investment opportunity
Just a few years ago, coal was considered obsolete -- an "old economy" fuel. It provided the energy for industrialization, world wars and reconstruction. But it seemed unpromising as an energy source for the future -- incapable of rivaling other energy sources such as petroleum, natural gas, wind power and solar power.
After all, coal has been blamed for ruining both the landscape and the climate. Coal-burning power plants pump far more carbon dioxide into the air than petroleum or natural gas fueled power stations do. Forests, pastures and entire cities become ghostly lunar landscapes when mining facilities are set up, and the ground starts to sink wherever coal is extracted. More than 170 pump facilities still have to be set up in the Ruhr region alone, just to keep the area from flooding and becoming a landscape of lakes.


A shearer loader working a coal face in a German mine. German techonology is highly respected in this industry.As a result of its unpopularity the proportion of coal that went into global energy consumption sank accordingly, from a respectable 31 percent in 1985, to barely 24 percent in 2004. Mining facilities closed all over the world.
But the new millennium has heralded a surprising turning point for the coal industry: The share of coal in global energy consumption has risen again to a current level of about 28 percent. Coal consumption will double in the rapidly expanding national economies of Asia, especially in China and India, according to a forecast by the US Energy Information Administration (EIA). The EIA is expecting dramatic growth in the United States and Brazil as well. Three large coal-burning power plants that were shut down in South Africa are due to be opened up again.
"Coal has a great future," says Hans-Wilhelm Schiffer, who analyzes energy markets for the energy company RWE Power. The need for electricity will increase considerably across the world, according to Schiffer. "Coal will have to contribute to meeting that need," he says. "Otherwise it will be impossible to keep up with growing demand." The demand for steel is also rising -- and steel production requires black coal.
The advantages of coal
In order to sate their tremendous hunger for energy and steel, China and India are making use of a fuel which dates back more than 300 million years ago.
The earth's climate was warm and humid during the carbon age and dead plants sank into the swamps and turned into turf. Sand and shingle sediments squeezed water out of the turf, creating brown coal and sometimes -- when the pressure remained high for long enough -- black coal. The longer the process continued, the more the water content was reduced, and the higher the quality of the coal became.
Cheap brown coal is extracted by open pit mining and used for energy production in power plants right by the mining facility. Black coal, on the other hand, often lies hundreds of meters below the ground. Thanks to its high calorific value, shipping it to distant lands is profitable. The coal can be burned in power plants or used for steel production in coke plants once it has arrived.
Coal has decisive advantages compared to the other fossil fuels, petroleum and natural gas: The coal supply is distributed all over the globe, and it's just about inexhaustible.
According to a study conducted for the German Economic Ministry by the business consultant Prognos, it will take 1,444 years for the world's coal reserves to be completely used up, given a constant level of consumption. Even the reserves that can already be accessed given today's technological standards will provide energy for 209 years. In the case of petroleum and natural gas predictions vary between 60 and 70 years.
"Coal is a much more secure source than petroleum and natural gas," says Schiffer. After all, coal is extracted in more than 60 countries; more than 40 percent of the world's reserves are located in the United States, Australia and the European Union. When it comes to petroleum and natural gas, Iranian threats or Russian-Ukrainian quarrels are enough to upset markets.
Coal prices, by comparison, are relatively stable - and still low. German power plant operators payed only €63 ($80) per ton for imported black coal in April 2006. The prices for petroleum and natural gas were €277 ($351) and €190 ($241), respectively.
The coal industry's current boom has turned what was once an unwanted resources into a much sought-after commodity. Turnover increased from about 500 million tons in 2000 to more than 800 million today. Australia and Indonesia lead the international hierarchy of exporting nations.
In the industrialized export nations small firms are merging to form large companies. At the same time, the importance of the state-owned coal-producing companies of developing countries has grown. The largest exporting companies BHP Billiton, Xstrata and Anglo American have increased their commitment to the coal trade, opened up new mining facilities and purchased shares of other companies. And on the derivatives market, coal is being traded more avidly than ever before.
China, the most important coal-producing nation, uses coal to cover about 70 percent of its energy needs. About 26,000 of the 28,000 registered mines are small firms, which use mining techniques last seen in Europe during the 19th century. It's a deadly trade: According to official estimates, more than 6,000 Chinese miners lose their lives in work accidents every year; the actual figure is probably about twice as high.
But now high-tech mining technology has reached China too. The Huainan business group wants to develop a long-term partnership with the German-based RAG corporation, which produces mining equipment and runs the remaining mines in Germany. The Huainan business group is planning to open five new major mines as well as two black-coal power plants in order to cover the enormous energy needs in the Shanghai region.
No business for idiots
In order to take a closer look at Germany's mining technology, some Chinese miners have started visiting German colleagues like Holger Strakerjahn. The 48-year-old man is in charge of 190 miners at two extraction sites at the mining facility Auguste Victoria/Blumenthal.


A coal power station in Germany. The production costs here are about two to three times higher than the price of importing coal.He likes the Chinese. He says the visitors from the Far East are eager to learn and have a hands-on approach. "After all, this is no business for idiots," says Strakerjahn as he crawls along a mining face 1,100 meters (3,609 feet) below the ground. Along the mining face, coal chunks are being torn from the rockbed with a giant planing machine.
The technology that the Chinese - but also the Russians, Iranians and Iraqis - are inspecting at Auguste Victoria/Blumenthal is the most up-to-date available. German mines are among the most modern in the world: Instead of hammers, the miners hold mini computers with barcode readers, using them to exchange information via the mine's own wireless LAN system.
Strakerjahn likes to talk about the scientific progress that has been made here in recent years, but he also likes to indulge in the romanticism associated with mining, just as he likes to talk about his silver honorary medal: "It's the only medal the German president awards to members of a specific trade," he says.
The decline of German black-coal mining, however, isn't something he particularly enjoys talking about.
In 1860 there were 277 mines in the Ruhr region alone. Now only eight are left, of which at least two will be shut down in the coming years. Germany has become a dwarf among black-coal producing nations: It produces less than 25 million tons of black coal a year, out of a global total of 5,000 million tons.
The reason is that black coal can be extracted profitably only where it can be found close to the earth's surface - as in the United States and in Australia, for example - or where miners can be made to work for starvation wages, often at considerable risk to their lives, as in China or India.
That's why German coal hasn't been competitive for decades: The production costs are about two to three times as high as the price of imported coal.
It's the German state that's paying the bill for German mines: Ever since coal subsidies were first introduced, the mines have gobbled up almost €130 billion ($165 billion) in tax payer's money. By 2008, Germany's federal government and the regional government of North Rhine-Westphalia (the region where the Ruhr is located) will have shelled out an additional €7.7 billion ($9.7 billion). That's a yearly subsidy of about €70,000 ($88,826) per miner.
Whether or not it's sensible to continue paying such sums is an issue that has been debated in Germany ever since the 1980s. Now that the coal-friendly Social Democrat Party (SPD) is no longer governing in Berlin and in Dortmund, the regional capital of North Rhine-Westphalia, the critics of the subsidy system are seeing the light at the end of the tunnel. "I'm saddened by the thought that everything could end here," says Strakerjahn. "Politicians should think hard about what they're doing." After all, he adds, German mining provides the best insurance against energy crises and resource scarcity.
As it happens, the coal industry's boom has fanned the spark of hope in the Ruhr too. In 2004, the price of so-called coking (or bituminous) coal reached an all-time high, driven up by China's enormous appetite for steel.
Hope in the Ruhr
The rising prices stimulated the imagination of people at the RAG corporation: One-and-a-half years ago, CEO Werner Müller announced that a new German mine could be opened for the first time in decades, on the eastern fringe of the Ruhr. But the record-price of coal soon turned out to be a short-term phenomenon: The price of coking coal dropped again, and no investors have been found for the mining project yet.
"Given the disparity between the production costs of German black coal and the prices for imported it, German black coal will continue to be able to make a contribution to supply security only if it benefits from state subsidies," explains Schiffer, the RWE analyst.
That's just one more reason for the energy industry to bet on the preservation of open pit black-coal mining in Germany. Open pit mines are in operation in four areas in the Rhineland region and in parts of former East Germany; they're being used for energy production. Brown coal remains Germany's most important nationally produced primary fuel, and Germany is the most important producer of brown coal in the world. The German brown coal industry is also one of the few that gets by without subsidies.
In order to reduce carbon dioxide emissions, which are more substantial in brown coal production than they are for any other fuel, power plant operators are working to develop new environmentally friendly technology. Their long-term goal is the development of a plant that produces no emissions at all.
On the other hand, most experts don't believe the German black coal industry should receive subsidies in order to secure the country's energy supply. According to Rhineland-Westphalia's Institute for Economic Research, the coal subsidies are like an insurance "whose premium is higher than the value of the object being insured."
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Economists such as the Essen-based professor Dieter Schmitt believe it would be better to just hoard a few years worth of coal supplies, thereby creating a reserve the country could fall back on in times of crisis. "That would be a much more economic way of achieving supply security," according to Schmitt.
This is another field where China seems to be learning from German inventiveness. The People's Republic Ministry of Land and Resources recently declared its intention to hoard "sufficient reserves" of natural resources.
The plan is for massive amounts of metals, such as copper and aluminium, to be hoarded in order to ensure that national demand can be met. The Chinese want to establish a sizeable coal deposit as well, according to the ministry - no less than 100 billion tons. That's 125 times the annual volume of the global coal trade.
The terrifying scale of the ministry's plans provoked a skeptical response from experts. But even if the People's Republic ends up bunkering only a fraction of the quantities cited by the ministry, that will certainly stop people talking about the death of the coal industry.