Energy Information Administration
FedStats
Introduction
United States
Europe
Australia
South Africa
China
Colombia and Venezuela
In recent years, the structure of the world's coal industry has undergone considerable change. European companies--in particular, multinational conglomerates--have increased their presence abroad in recent years. The gradual removal of European coal subsidies may have encouraged this trend. In the United States, as the role of European companies has grown more pronounced, U.S.-based industry participants have reduced their role. Prominent among the latter group have been several of the smaller independent coal producers, major U.S. petroleum companies, electric utilities, and domestic steel manufacturers. As in the United States, foreign investment has played a considerable role in Australia, the world's largest exporter of coal.
Coal accounts for 25 percent of global energy consumption, significantly less than crude oil (39 percent), but more than natural gas (22 percent) {see Endnote 284}. Ninety percent of coal production is consumed in the country of origin, primarily for the generation of electricity {see Endnote 285}. Although only about 10 percent of world coal production makes its way into export markets, international trade in coal has grown substantially in recent years. This has been particularly true of steam coal. In 1985, international trade in steam coal and metallurgical coal were roughly equal. By 2005, steam coal trade is expected to be double metallurgical coal trade {see Endnote 286}. Between 1973 and 1994, international coal trade doubled and is expected to increase by an additional 50 percent by 2010. A handful of nations--and companies--account for the bulk of this trade. Australia is the largest exporter of coal, followed by the United States and South Africa. In 1994, Japan was far and away the world's largest coal importer, followed by South Korea, Russia, Taiwan, Germany, the Netherlands, and Great Britain. Although the leading world coal-producing companies include some state-owned companies, a handful of multinational conglomerates figure very prominently in worldwide coal trade and investment. These companies are primarily from the United Kingdom, Germany, the United States, and Australia. Interestingly, although Japan is the world's largest importer of coal (and also the largest importer of U.S. coal), Japanese companies have made relatively minor investments in coal assets abroad. Many of the world's largest producers of coal are not publicly traded corporations. Neither are they multinational in outlook. For instance, among the world's largest producers of coal are the national coal companies of Russia, India, and Ukraine.
Foreign investors have become increasingly important in U.S. coal over the past decade or so. The share of foreign affiliates in U.S. coal production has grown from nearly zero in the late 1970's to 29 percent in 1994. In 1994, three of the top five U.S. coal-producing companies were foreign-affiliated, accounting for more than one fifth of total U.S. production. The largest foreign-affiliated producer of coal in the United States (as well as the largest producer of coal in the United States) is Peabody Holding Company. Peabody's parent corporation, the British firm Hanson PLC, is the world's second largest privately-owned coal producer. The second largest foreign-affiliated producer is Consol Coal, which is also the third largest U.S. coal producer. Consol is a 50-50 joint venture between DuPont and the German company, Rheinbraun AG. Rheinbraun AG is the world's largest privately held coal producer. The third largest foreign-affiliated U.S. coal producer is Kennecott Energy Company, which is owned by the British company, RTZ PLC, the world's biggest mining group. Kennecott is the fourth largest producer of coal in the United States {see Endnote 287}.
A number of factors contributed to the attractiveness of the U.S. coal industry as a target of foreign investment.
For one, the United States is the largest coal market open to foreign investors. In addition to being the second largest exporter of coal, the United States is the world's second largest coal consumer and producer {see Endnote 288}. Most of the foreign investment in U.S. coal has been from Europe.
European coal companies are motivated in part to invest in U.S. coal in order to secure sources of coal in the face of declining European production. However, this motive is apparently prospective rather than reflective of the current patterns of production and imports of coal. That is, the United Kingdom, which is the largest foreign investor in U.S. coal, ranked tenth among coal importers; Germany, the second largest investor, ranked twentieth. Japan, Canada, France, Spain, Belgium, the Netherlands, and Italy all imported more U.S. coal than the United Kingdom and Germany, but these countries had little, if any, in the way of U.S. coal investments.
Financial incentives are another possible motive for investing in U.S. coal. Were it not for the widespread exit of the U.S. major petroleum companies from domestic coal mining, this motive might appear more plausible. It was largely due to several years of financial under performance among their coal segments that resulted in the majors' departure from U.S. coal. Only three times in the last eighteen years did the majors' profitability in coal exceed the profitability of their consolidated operations {see Endnote 289}.
Possibly the key factor motivating UK and German investors is that as inefficient European mines continue to close, multinational European coal producers have had to move abroad in order to remain in the coal business. As is evident from the discussion below, the United States and Australia (with their extensive coal reserves, established export markets, and few impediments to foreign investors) have gained prominence as targets for coal investments.
In Western Europe, coal production is concentrated, with the United Kingdom and Germany accounting for roughly four-fifths of total production and Spain and France accounting for most of the remainder. Until recently, European coal producers benefitted from protected markets and from an extraordinary array of generous subsidies, allowing European coal mines, which had become vastly inefficient by world standards, to remain in operation. In Germany, for instance, subsidies have until recently been financed by a 7.5-percent levy on electricity bills. As a consequence, domestic coal prices in Germany have been more than three times the import price {see Endnote 290}.
In turn, electricity prices in Germany are the most expensive in Europe, and 70 percent more costly than in the United States {see Endnote 291}. However, the German coal industry has been shrinking in recent years in order to comply with European Union mandates and to remain competitive in a global market place.
The restructuring of Europe's coal industry is also due in part to a shift to alternative fuels. The proportion of Western Europe's energy consumption fueled by coal fell from around 80 percent in the 1950's to 25 percent in 1994. In the future, European utilities are expected to move toward greater usage of increasingly available North Sea natural gas and away from coal.
As a result of the continued elimination of coal subsidies and shift toward natural gas, the European coal industry has been declining. In 1994, coal production in the United Kingdom declined by over 60 percent from its 1980 level, while Germany experienced a decline of almost 40 percent in hard coal production. The larger reduction in coal output in the United Kingdom was in part due to the more forceful elimination of subsidies undertaken by the British government. Germany has been behind schedule in doing away with coal subsidies. For OECD Europe, hard coal production is expected to fall from 187 million metric tons in 1992 to 80 million metric tons in 2010 {see Endnote 292}.
In contrast to Europe, U.S. coal production peaked in 1994, surpassing 1 billion short tons for the second time in history. U.S. production in 1994 was 25 percent larger than in 1980. Further, in future years, the United States is expected to increase its coal output. Other countries expected to boost coal production and exports in future years include the largest and the third largest coal exporters, Australia and South Africa. Recent entrants into the global coal trade include Colombia and Venezuela.
Interestingly, with the exception of South Africa, all of the aforementioned nation's coal industries have seen increasing levels of foreign direct investment from a handful of multinational conglomerates.
Until recently, the United States was the world's primary source of coal exports. In 1970, the United States accounted for one-half of the international coal trade {see Endnote 293}. By 1994, the U.S. share of world coal trade had declined to 15 percent of the total. In 1986, Australia supplanted the United States as the world's largest exporter of coal. As recently as 1980, U.S. coal exports had been double those of Australia.
Coal is Australia's number one export {see Endnote 294}. Some of the companies most prominent in the U.S. coal industry are also prominent in Australia's coal industry, particularly that part of the industry directed towards export markets. As in the United States, foreign investment plays a key role in Australia's coal industry, further indicating how multinational in character world coal investment has become. Australia consumes less than a third of domestic production (versus 90 percent in the United States).
Although 70 percent of Australia's coal exports goes to Japan, Japan's investment in Australian coal is comparatively small {see Endnote 295}. Ownership of Australian coal assets is largely held by Australian, U.S., and European companies. The largest producer of coal in Australia is the Australian multinational conglomerate, Broken Hill Proprietary Company Limited (BHP). In addition to its Australian coal mining operations, BHP is the 17th largest coal producer in the United States, and also has coal mining interests in Indonesia. The second largest exporter of Australian coal is CRA Corp, an Australian company which has recently merged with the British company RTZ Corp. As noted earlier, RTZ Corp is the fourth largest producer of coal in the United States. Third among Australian coal producers is Cyprus Amax Minerals Company, a U.S. multinational minerals company and the second largest producer of coal in the United States. Other major exporters of Australian coal include Exxon, ARCO, and Peabody--all companies with major U.S. coal operations. The fifth largest exporter of Australian coal is Royal Dutch/Shell, which exited the U.S. coal-producing industry in 1994.
South Africa is the third largest exporter of coal. Coal accounts for 98 percent of South African energy production and 78 percent of energy consumption {see Endnote 296}. South Africa ranks seventh in coal reserves {see Endnote 297}. For most of the last decade, United Nations' sanctions have restricted the flow of foreign direct investment to South African industries. Even in 1994, the year in which sanctions were lifted, foreign direct investment in South Africa was less than in 1980 {see Endnote 298}. Although they are primarily domestically-held corporations, South African coal mining companies are among the largest in the world. With the lifting of the U.N. sanctions in 1991, South Africa coal mining could become a target of foreign direct investment and a growing source of coal exports.
Coal is abundant and cheap in China. With the world's third largest deposits, China leads the world, both in the production and the consumption of coal. In 1994, coal accounted for 75 percent of the country's total energy consumption. The country's heavy reliance on its most available fuel is increasing as China's economic growth places greater demands on domestic petroleum supplies and the potential for petroleum import dependence increases. China's proximity to major coal-importing nations makes China an ideal exporter. Although rising, the amount of Chinese coal exports has been small due to domestic coal consumption requirements and poor infrastructure for exports. Coal imports by Asian countries are expanding primarily to meet rapidly increasing demand in electric power generation.
There has been some attempt at reform in the industry. Mine ownership has been partially redistributed from the government to private parties. Currently, around half of China's coal production comes from state-controlled mines and regional or local authorities.
The other half is produced by collective or privately owned operations. Reforms also have extended to the removal of price controls in early 1994 {see Endnote 300}.
The industry is beginning, however, to attract foreign participation. For instance, cooperative agreement was announced between the government and an international consortium to construct a $900-million underground coal slurry pipeline running from Shanxi Province to coastal Shandong. It will be the largest and longest such installation in the world and will have annual capacity of 15 million tons upon completion. Later, the project is to be expanded into an extensive coal slurry pipeline network. The project is one of the first major infrastructure projects in modern China to have western financial and management control {see Endnote 301}. In addition, BHP Mineral & Oil Company of Australia and two Chinese firms plan joint development of coalbed methane in North China's Shanxi province {see Endnote 302}. Amoco and ARCO are also exploring coal mining interests {see Endnote 303}.
Another important area of recent international investment in coal lies in Latin America, primarily Colombia and Venezuela. Colombia is far and away the largest producer of coal in Latin America, followed by Brazil and Venezuela {see Endnote 304}. Colombia also has Latin America's largest coal reserves. Currently ranked ninth in the world in terms of coal exports, Colombia is expected to play an increasingly important role in world coal trade in the future. Again, several of the companies investing in Latin American coal mining are those with coal investments in the United States and Australia. The Italian energy company AGIP mines coal in Venezuela, as does Royal Dutch/Shell and the German energy conglomerate Ruhrkohl. AGIP and Veba also have coal mining operations in the United States {see Endnote 305}. Both Exxon and Drummond have coal investments in Colombia {see Endnote 306}.