Natural Resources in Global Context – Role of Indonesia in the Global Coal Mining Market
Coal, a combustible sedimentary rock that is primarily composed of carbon (along with varying amounts of other elements like hydrogen, sulfur and oxygen), is a fossil fuel formed from the remains of ancient plants that were compressed (and heated) over millions of years, typically in swampy or wetland environments.
The weight of overlying layers and Earth's natural heat and pressure transformed the plant matter into peat first. Peat, a precursor to coal, used to be an important fuel but nowadays it is mostly used in horticulture (peat moss).
Further burial, heat, and pressure over millions of years convert the peat into coal. Today, coal is primarily known for its role as a fuel source for generating electricity in power plants.
If we go back into history, there is evidence that coal was used by people for heating in ancient times (as far back as 4,000 years BCE, in China). However, the Industrial Revolution in the 18th century marked a significant turning point as the development of the steam engine, powered by coal, triggered a dramatic rise in coal consumption. Coal in fact became the primary fuel source for factories, heating and transportation (including steam locomotives and ships).
In both the 19th and the 20th century, coal remained the dominant fuel source as its use expanded in tune with the expansion of electricity generation. The use of coal, in fact, peaked at the beginning of the 20th century.
While coal remains widely used today around the world, its dominance has declined with the rise of other energy sources, such as oil, natural gas and renewable energy. Another factor that has been putting pressure on coal is rising concern about coal’s contribution to global warming or climate change. However, despite Western efforts to reduce global coal consumption, both the production and consumption of coal has reached record high levels in the present.
Meanwhile, Indonesia is a key player in the global coal market as this country ranks among the top suppliers and top exporters of this ‘dirty fuel’. In fact, Indonesia also consumes considerable amounts of coal (particularly in power plants). In this article we analyze Indonesia’s role in – and contribution to – the international coal market.
Coal’s Finite and Dirty Nature to Cause Changes
It is interesting to point out that coal is a depletable fuel source as reserves are finite. Considering it takes millions of years for coal to develop (implying reserves cannot be increased on the short term), coal is regarded a non-renewable source (at least on a human timescale). Given its finite nature, the price of coal is likely to go up in the long run (in the next century or so, provided global coal demand remains strong) as buyers will be in competition for increasingly scarce supplies in the far future.
The above suggests that coal consumers may want to change their business models in the next couple of decades in order to avoid seeing increasing costs, for example, by shifting to other energy sources. This is something coal producers need to keep in mind. This will become particularly relevant in case further advances are made with renewable energy sources, including storage systems (becoming more efficient and affordable). Indeed, we have already seen several Indonesian coal miners adapt, reflecting the growing global trend among the fossil fuel companies to adapt to the energy transition and diversify their portfolios towards cleaner energy sources.
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