2013 March 8

The Master Resource Report  2013-03-08

Greenpeace on coal exports to China

Greenpeace released a report that attempts to make an economic case (in addition to an environmental case) against the export of U.S. coal to China. “The Myth of China’s Endless Coal Demand: A missing market for US Exports”

The basic premise of the report is summed up in the first paragraph of the report summary.

“Investors and policymakers considering supporting coal export projects should proceed with great caution given the sluggish projections for China’s economic growth and coal consumption.”

Two major points need to be kept in mind when reading this report which is recommended.

First the focus on China even though U.S. exports to Europe and the rest of Asia are many times larger was a mistake. The exclusion of India from the report in particular was a major error since it is on a path to greatly increase its coal imports during the decade ahead.

The other error was the view that coal’s percentage contribution to power generation would continue implying less coal consumption. “A rapid expansion in hydroelectricity, wind, and solar has pushed down coal’s share of energy production from 85% to 73%, and this trend will continue.”

While it is true that coals relative contribution to power generation has declined in percentage terms in absolute tonnage it has increased dramatically. To illustrate this consider this excerpt from the EIA release in January of this year.

Coal consumption in China grew more than 9% in 2011, continuing its upward trend for the 12th consecutive year, according to newly released international data. China’s coal use grew by 325 million tons in 2011, accounting for 87% of the 374 million ton global increase in coal use. Of the 2.9 billion tons of global coal demand growth since 2000, China accounted for 2.3 billion tons (82%). China now accounts for 47% of global coal consumption—almost as much as the entire rest of the world combined.

Given the scale of consumption mentioned in the EIA excerpt whether the U.S. exports coal to China or not won’t change the picture at all. What happens in China is what matters. It is up to China to shift from coal burning on this scale. Whether the U.S. exports them coal or not doesn’t really matter.

The report is worth reading but do so with a critical eye and an awareness of its objective of making the case against coal exports from the U.S. west coast.

Statoil CFO interview on Bloomberg

[Comments on U.S. LNG exports at 5:30 in the video]

Exxon’s view of the future

It shouldn’t be a surprise that this is Exxon’s view, but it shouldn’t be discounted out of hand either. It does make it clear how hard it will be to get off of oil over the next couple of decades even if the exact numbers and relationships prove wrong.

“Exxon Mobil predicted that global energy demand will grow 35 percent by 2040 with oil and gas accounting for more than coal, nuclear or other sources.”

Rig count drops further

Baker Hughes reported today that the number of rigs drilling for natural gas fell 13 to 407.

Note: Clients and advisors at Ravenna Capital Management currently hold positions in Exxon and do not hold positions in Statoil.