Coal Mining in Indonesia

What is Coal?

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 18^th 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 19^th and the 20^th 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 20^th century.

While coal remains widely used today around the world in the 21st century, 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).

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.

The main problem that coal has is that it is a major greenhouse gas contributor as burning coal releases large amounts of carbon dioxide (CO2) that are believed to be responsible for climate change and global warming. Coal has a higher carbon content per unit of energy produced compared to other fossil fuels like natural gas, and thus is a dirtier fuel.

Moreover, coal combustion releases various harmful air pollutants, including sulfur dioxide, nitrogen oxides, particulate matter, mercury, arsenic, and several (other) heavy metals. Burning coal also produces significant amounts of ash, including fly ash and bottom ash that can contain heavy metals and other toxic substances.

So, in short, coal is considered a dirty fuel because its entire lifecycle, from extraction to combustion (and waste disposal), releases substantial amounts of pollutants into the air, water and land. This poses threats to human health and the environment. It explains why there is a big push to transition towards cleaner and more sustainable energy sources.

Coal in High Demand in the Asia Pacific

When we take a look at today’s coal consumption then it’s quite remarkable that coal consumption is declining in most of the world, with the notable exception of the Asia Pacific region. Here, in the Asia Pacific, it are China and India that play huge roles in the coal market. While China remains the world’s biggest coal consumer, India is an emerging coal consuming giant. Since 2023, coal consumption in India has exceeded the combined coal consumption of Europe and North America.

In 2023, global coal production reached its highest ever level at 179.2 exajoules (EJ), beating the previous record that was set in 2022. The Asia Pacific region accounted for nearly 80 percent of global coal production in 2023 with activity concentrated in four nations: China, India, Indonesia and Australia (which together were responsible for 97 percent of the region’s coal output). Meanwhile, China alone, was responsible for just over half of total global production.

Table 1; Top Coal Producing Countries in 2023:

Country	Coal Production (in million tons)	Share of Global Production
1. China	4,710.0	51.8%
2. India	1,010.9	11.1%
3. Indonesia	775.2	8.5%
4. United States	526.5	5.8%
5. Australia	455.8	5.0%
6. Russia	432.5	4.8%
-  World	9,095.7	100.0%

^{Source: Statistical Review of World Energy 2024 | 73rd edition, Energy Institute (EI)}

What this means is that China is extremely dominant in the global coal market. When it decides to cut coal production, then it can cause global coal prices to grow steeply. In fact, China’s government can intentionally decide to cut production in an effort to push coal prices higher, allowing Chinese coal miners to generate more revenue. Or, when flooding in northern China (specifically Inner Mongolia, which is known for its large-scale open-pit coal mines and which is a significant contributor to China's total coal output) affects the country’s major coal production centers, then this can cause skyrocketing global coal prices. To compensate for the lower domestic output, China would likely need to increase its coal imports from other major exporting countries such as Indonesia and Australia (thereby boosting global demand for coal).

However, it is true that in most of the world coal consumption is on the decline. Chart A shows that in Europe, North America and ‘rest of the world’ coal consumption has been easing since the mid-2000s (or one could also argue that the decline started in the late-1980s in these three categories due to the shift to other energy sources such as natural gas, and nuclear power).

But coal consumption in the Asia Pacific has truly been skyrocketing ever since 2000 (when the 2000s commodities boom erupted), particularly on the back of very steep economic growth in China that triggered high demand for coal.

Chart A; Global Coal Consumption per Region 1965-2023:
^{Source: Statistical Review of World Energy 2024 | 73rd edition, Energy Institute}

And indeed, it is China that is also fully dominant in terms of coal consumption. Table 2 shows that China accounts for more than half of global coal consumption, followed by India. Although India remains at a wide distance, this certainly is a rising giant in terms of coal consumption as coal is a crucial (and affordable) fuel for many energy-intensive industries in India, including steel, cement and textiles.

Table 2; Top Coal Consuming Countries in 2023:

Country	Coal Consumption (in exajoules)	Share of Global Production
1. China	91.94	56.0%
2. India	21.98	13.4%
3. United States	8.20	5.0%
4. Japan	4.54	2.8%
5. Indonesia	4.32	2.6%
6. Russia	3.83	2.3%
-  World	164.03	100.0%

^{Source: Statistical Review of World Energy 2024 | 73rd edition, Energy Institute (EI)}

Again, the table reflects China’s dominant position in the global coal market. If China decides to limit coal imports, it leads to a drastic decline in global demand for coal, and thus global coal prices will ease. On the other hand, if it decides to import a lot of coal (because of disruptions at its national coal pits), then global demand for coal is lifted, allowing global coal prices to rise.

Global Coal Reserves

According to the World Coal Association, current (worldwide) proven coal reserves are estimated to be sufficient for more than 100 years, at present production levels. However, this is a general estimate. The actual lifespan of coal reserves is influenced by a couple of crucial variables. For example, strongly increasing coal consumption in the developing countries can shorten the lifespan of reserves. On the other hand, a shift towards renewable energy sources can extend its lifespan.

Furthermore, technological advancements such as improved mining technologies or more efficient coal utilization can improve accessibility of previously unrecoverable reserves. Or, new coal deposits might be found. Meanwhile, stricter environmental regulations and carbon emission reduction targets could lead to a decrease in coal consumption. All these matters would extend the lifespan of coal.

The Uncertain Future of Coal Requires Adjustments to Be Made

Indonesia is a key player in the global coal market but it also needs to be somewhat careful as the coal market in Asia is very dynamic. Changes in coal demand in China and India can drastically change the coal market. It means Indonesia needs to be very aware of looming changes in those countries. Moreover, while coal remains a key energy source, there is a growing push for renewable energy sources in Asia. And so, it’s crucial how Indonesia will navigate these changes and transitions, while at the same time diversifying its energy exports.

To a certain degree, one can argue that China and India determine the future of coal exports for Indonesia. Currently, China and India rely heavily on coal for a significant portion of their power generation and industrial activities. But although their huge coal demand won't be replaced overnight, both countries have ambitious renewable energy targets. This does cause some dark clouds over the future of Indonesian coal exports.

However, the transition away from coal is expected to take more time than initially projected due to technological challenges, grid infrastructure limitations, financing hurdles, and the sheer scale of China and India’s energy needs.

[Under Construction, 20.03.2025]