Coal

At current rates of production (and if new reserves are not found), global coal reserves are estimated to last for around 112 years. The biggest reserves are found in the USA, Russia, China and India.

Top Coal Producers in 2016¹

Country	Production Volume (million tons oil equiv.)
China	1685.7
USA	364.8
Australia	299.3
India	288.5
Indonesia	255.7
Russia	192.8
South Africa	142.4

^{¹ commercial solid fuels only, i.e. bituminous coal, anthracite (hard coal), lignite and brown (sub-bituminous) coal
Source: BP Statistical Review of World Energy 2017}

Coal in Indonesia

Indonesia's Coal Production & Export

Indonesia is one of the world's largest producers and exporters of coal. Since 2005, when it overtook Australia, the country is the leading exporter in terms of thermal coal. A significant portion of its exported thermal coal consists of the medium-quality type (between 5100 and 6100 cal/gram) and the low-quality type (below 5100 cal/gram) for which large demand originates from China and India. According to information presented by Indonesia's Ministry of Energy and Mineral Resources, Indonesian coal reserves are estimated to last around 83 years if the current rate of production is to be continued.

Regarding global coal reserves, Indonesia currently ranks 9th, containing roughly 2.2 percent of total proven global coal reserves according to the most recent BP Statistical Review of World Energy. Around 60 percent of Indonesia's total coal reserves consists of the cheaper lower quality (sub-bituminous) coal that contains less than 6100 cal/gram.

There are numerous smaller pockets of coal reserves on the islands of Sumatra, Java, Kalimantan, Sulawesi and Papua but the three largest regions of Indonesian coal resources are:

1. South Sumatra
2. South Kalimantan
3. East Kalimantan

The Indonesian coal industry is rather fragmented with only a few big producers and many small players that own coal mines and coal mine concessions (mainly in Sumatra and Kalimantan).

Since the early 1990s, when the coal mining sector was reopened for foreign investment, Indonesia witnessed a robust increase in coal production, coal exports and domestic sales of coal. The latter, however, has always been rather insignificant as domestic consumption of coal is relatively small in Indonesia. But in recent years there has been a rapid increase in domestic coal sales because the Indonesian government is committed to its ambitious energy program (implying the construction of various power plants, mostly coal-fired because Indonesia has plenty of coal reserves). Moreover, several big Indonesian mining companies (for example coal miner Adaro Energy) have expanded into the energy sector as prolonged low commodity prices made it unattractive to remain focused on coal exports, hence becoming integrated energy companies that consume their own coal.

Roughly between 70-80 percent of Indonesia's coal production is exported abroad, the remainder is sold on the domestic market.

Indonesian Production, Export, Consumption & Price of Coal:

	2014	2015	2016	2017	2018	2019
Production (in million tons)	458	461	456	461	425¹	400¹
Export (in million tons)	382	375	365	364	311¹	160¹
Domestic (in million tons)	76	86	91	97	114¹	240¹
Price (HBA) (in USD/ton)	72.6	60.1	61.8	n.a.	n.a.	n.a.

^{¹ = projection}

	2007	2008	2009	2010	2011	2012	2013
Production (in million tons)	217	240	254	275	353	412	474
Export (in million tons)	163	191	198	210	287	345	402
Domestic (in million tons)	61	49	56	65	66	67	72
Price (HBA) (in USD/ton)	n.a	n.a	70.7	91.7	118.4	95.5	82.9

^{Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources}

During the 2000s commodities boom the coal mining industry was very lucrative as coal prices were comfortably high. Hence, many Indonesian companies and wealthy families decided to acquire coal mining concessions on Sumatra or Kalimantan in the late 2000s. Coal became known as the "new gold".

What drove this increase in Indonesia's coal production and export?

• Coal is the dominating force in power generation. At least 27 percent of the world's total energy output and more than 39 percent of all electricity is produced by coal-fired power plants due to coal's abundance, its relatively easy and low-cost extraction, and less expensive infrastructure requirements compared to other energy resources.

• Indonesia contains abundant reserves in medium and low-quality coal. These types of coal are competitively priced on the international market (partly due to Indonesia's low labor wages).

• Indonesia's strategic geographical position towards the giant emerging markets of China and India. Demand for low quality coal from these two countries has skyrocketed as many new coal-fired power plants have been built to supply electricity to their immense populations.

The main export destination countries for Indonesian coal are China, India, Japan and South Korea. During the peak years coal contributed around 85 percent to total state revenue from the mining sector.

Indonesian Government's Benchmark Thermal Coal Price (HBA):

Month	2012	2013	2014	2015	2016	2017
January	109.29	87.55	81.90	63.84	53.20	86.23
February	111.58	88.35	80.44	62.92	50.92	83.32
March	112.87	90.09	77.01	67.76	51.62	81.90
April	105.61	88.56	74.81	64.48	52.32	82.51
May	102.12	85.33	73.60	61.08	51.20	83.81
June	96.65	84.87	73.64	59.59	51.87	75.46
July	87.56	81.69	72.45	59.16	53.00	78.95
August	84.65	76.70	70.29	59.14	58.37	83.97
September	86.21	76.89	69.69	58.21	63.93	92.03
October	86.04	76.61	67.26	57.39	69.07	93.99
November	81.44	78.13	65.70	54.43	84.89	94.84
December	81.75	80.31	69.23	53.51	101.69	94.04
Average	95.5	82.9	72.6	60.1	61.8	85.9

^{in USD/ton
Source: Ministry of Energy and Mineral Resources}

Future Prospects of the Indonesian Coal Mining Sector

The commodities boom of the 2000s generated significant profits for companies engaged in the export of coal. The rise in commodity prices was - to a large extent - triggered by accelerated economic growth in emerging and developing economies. But this profitable situation changed with the outbreak of the global financial crisis in 2008 when commodity prices went down fast. Indonesia was affected by these external factors as exports of commodities (in particular coal and palm oil) account for around 50 percent of total Indonesian exports, thus limiting the country's GDP growth in 2009 to 4.6 percent (which still represents an impressive number, largely supported by domestic consumption). From the second half of 2009 until the beginning of 2011 a sharp rebound in global coal prices occurred. However, reduced global economic activity has lessened demand for coal, thus resulting in a downward trend of coal prices between early 2011 and mid-2016.

Apart from sluggish global economic growth (and the hard landing of China's economy), there was also another factor at play that caused low coal prices. During the lucrative 2000s commodities boom many new coal mining companies were established in Indonesia while existing coal miners raised investment to expand production capacity. This caused a severe supply glut that was exacerbated by coal miners' eagerness in the years 2010-2013 to produce and sell as much coal as possible - amid low global coal prices - in order to generate revenue and profit.

In the second half of 2016 coal prices surged to levels last seen in early 2014, hence giving some fresh air to the mining industry. This price increase was triggered by the somewhat recovering crude oil prices, rising domestic coal demand in Indonesia on the back of the completion of new coal-fired power plants, but more importantly because of China's coal mining policies. China, the world's largest producer and consumer of coal, decided to cut its domestic coal output. The key reason why China wanted to push the coal price into higher territory in the second half of 2016 is that China's non-performing loan (NPL) ratio in the domestic banking sector had risen to 2.3 percent in 2015. The main reason that explains this rising NPL ratio was that China's coal mining companies had trouble to repay debt.

However, considering global economic activity is still rather bleak, the direction of coal prices in the short to medium term are highly dependent on China's coal policies.

Despite global awareness regarding the importance to reduce nation's dependency on fossil fuels, developments in renewable energy resources do not show an indication that the world's dependency on fossil fuels (especially coal) will be reduced significantly in the foreseeable future, thus coal is set to remain a key energy resource. Clean coal technologies in coal mining, however, are expected to gain significance in the future (partly due to commercial relevance) and Indonesia is expected to become heavily involved in that process being a major player in the coal mining sector. These clean coal technologies focus on the reduction of emissions produced by coal-fired power generation but lack sustained progress yet. Upstream activities connected to coal mining, such as the development of coalbed methane (CBM) reservoirs of which Indonesia contains great potential, has begun to receive attention recently.

Indonesian government policy will affect the nation's coal mining industry. To secure domestic supplies, the Indonesian Ministry of Energy and Mineral Resources orders coal producers to reserve a specific amount of their production for domestic consumption (domestic market obligation). Moreover, the government can adjust its export tax to discourage coal exports. The government aims for more domestic consumption of coal as it wants coal to supply around 30 percent of the country's energy mix by 2025:

Indonesia's Energy Mix:

	Energy Mix       2011	Energy Mix       2025
Oil	50%	23%
Coal	24%	30%
Gas	20%	20%
Renewable Energy	6%	26%

^{Source: Ministry of Energy and Mineral Resources}

Updated on 5 April 2018