Coal: The story of the world’s most abundant fossil fuel

• What is coal?
• Coal History
• Coal mining and processing 
• Global coal production and consumption
• Coal uses
• Coal and the environment
• Coal price outlook for 2018 and 2019

What is coal?

Coal is a combustible black or dark brown sedimentary rock that has a high amount of carbon and hydrocarbons.

Coal is not a homogenous substance. This means that it does not have a fixed chemical formula. Besides carbon, coal is also made up of varying degrees of ash, hydrogen, nitrogen, oxygen, and sulfur. Chlorine and sodium are also present in coal, however, they are considered undesirable chemical constituents.

Types of Coal

According to the U.S. Energy Information Administration (EIA), there are four types of coal, also known as ranks: anthracite, bituminous, subbituminous, and lignite. Coal is classified within each rank based on the types and percentage of carbon the coal contains as well as the amount of heat energy the coal is able to produce. Let’s get a bit more specific on each type or rank of coal.

• Anthracite consists of 86-97% carbon and is generally the type of coal with the highest heating value. Anthracite is mainly used by the metals industry during the production process.
• Bituminous coal consists of around 45-86% carbon and is usually between 100 and 300 million years old. Bituminous coal is one of the more abundant ranks of coal, especially in the United States, where it accounted for 45% of all coal mined in the U.S. in 2015. It is used mainly for electricity generation while it is also an important part of the production process of steel and iron ore.
• Subbituminous coal is made of 35-45% carbon and has a lower heating value than Bituminous and Anthracite. Subbituminous coal is at least 100 million years old.
• Lignite is last on the list and contains 25-35% carbon with the lowest energy heating value of all of the ranks. Lignite deposits are relatively young and its crumbly and high moisture nature is what contributes to its low heating value. Lignite is primarily used for generating electricity, however, it can also be converted into synthetic natural gas.

Coal History

As has been the case with a lot of our commodities explainers, coal has a long history, however, we’re going back hundreds of millions of years to before the dinosaurs with this one. In this section we explain how coal was formed as well as our human history using coal.

How was coal formed?

Coal began to form way back, hundreds of millions of years ago before the dinosaurs roamed the earth. The planet at that time was covered in trees and other plants in swampy forests. After the plants died, they were buried under water and soil over hundreds of millions of years. The heat and pressure over the course of that time forced out oxygen and what was left were rich carbon deposits. These carbon deposits in time formed into the coal we mine today all over the world.

Human use of coal

There is archaeological evidence to suggest that coal has been used by our ancestors, prehistoric man, going back 25,000 years. In the 1950s a figurine known as the Venus of Landek was discovered in the Czech Republic. Although the figurine was made out of iron ore, it is thought likely that the prehistoric people from that area that created it and other ornaments like it also burned coal in their hearths.

There is also evidence of coal use during prehistoric times through the archaeological finds of primitive coal mining set ups such as small-scale drift mines and bell pits in various locations.

Some of the earliest recognized use of coal came from China around 4000 BC when Neolithic inhabitants carved ornaments out of lignite. A couple thousand years later, around 1000 BC, the Chinese began using coal to smelt copper, which would represent some of the earliest documented evidence of coal use for metalworking.

Although it appears that coal was used in the Czech Republic in prehistoric times, the earliest references of coal use in metalworking from Europe came from the geological treatise On Stones (Lap. 16) by Greek scientist Theophrastus who lived between 371 – 287 BC.

No story of commodity history would be complete without a reference to the Roman Empire. The Romans used coal extensively during the Bronze Age and by the late 2^nd century AD had exploited most of Britain’s coalfields. There have been many coal stores found at forts along Hadrian’s wall with nearby smelting furnaces found at Longovicium, an auxiliary fort located in present-day Durham county, England. Romans used coal in hypocausts, which were ancient systems of underfloor heating, to heat public baths. They even used coal to heat wealthy villas.

Strangely, there is not much evidence that coal was a very important raw material after the Roman Empire left Britain until around 1000 AD. Britain, as it does to this day, had an abundance of coal. During this time, it was traded throughout Britain between Scotland, Northeast England and London. It was used mostly for metal working and smelting. It was also used later for domestic heating in some homes.

The earliest known use of coal in the Americas was by the Aztec civilization that used it to create ornaments during the 14^th and 15^th centuries. Native American tribes from the present-day southwestern United States, such as the Hopi, also used coal during this time for cooking, heating, and pottery making, which requires heat to harden the clay.

Although humans had been mining coal for a good few years at this point, early coal extraction methods, such as bell pits, were ineffective in extracting coal. For example, bell pit mining in the Northeast of England was only good enough to recover around 40% of the coal available. However, in the 17^th century leading into the 18^th century and the Industrial Revolution, coal extraction methods improved rapidly.

The industrial revolution began in the United Kingdom and spread out from there. The boom of the Industrial Revolution was heavily linked to availability of coal to power steam engines, which was much more efficient than wood. James Watt, a Scotsman, developed the Watt steam engine between 1767 and 1776. It wasn’t the first steam engine, however, it made some very important improvements on previous designs, making it more efficient and safer. Watt’s design marked a key point in the industrial revolution and became synonymous with steam engines. It helped usher in the modern world through the conversion of coal to mechanical energy.

Coal was discovered in Australia at Hunter River in 1795. A settlement of convicts was established at the site in 1804 to mine the region of its coal. That settlement is today known as Newcastle, New South Wales and is the largest coal export port in the world.

As coal extraction methods improved during the 18th century, coal deposits near the earth’s surface began to exhaust. Thus new technologies were developed by the late 18th century which would allow for deep shaft mining. This is what really kickstarted coal production and exports.

In 1780, annual coal production in Britain was around 6 million tons, by 1815 that number jumped to 16 million and by 1830 Britain was producing over 30 million tons of coal annually. As new technologies emerged, other countries around the world got in on the act and the U.S. eventually took the title from Britain as the preeminent producer of coal.

Coal was found in 1701 by Huguenot settlers in the James River region of Virginia. The first coal production began in 1748 in Virginia with the first shipment happening 10 years later. In 1830, Tom Thumb, built the first American steam locomotive. This resulted in a surge of American coal consumption. In 1860, there was so much smog from coal smoke in Philadelphia that English novelist Anthony Trollope referred to the city as the “blackest place” he had ever seen. In just 20 short years, from 1850 to 1870, coal output went from 8.4 million tons to 40 million tons and by 1900, annual output was 270 million tons.

Coal was first used to produce electricity in the U.S. in 1882 when Thomas Edison built the first practical coal powered electric power station, which supplied electricity to residents in New York City. In 1901, the General Electric (GE) company constructed the first alternating current power plants for the Webster Coal and Coke Company. This eliminated difficulties associated with current transmission over long distances. By 1968, coal powered 60% of America’s electricity. In 1970 annual coal production amounted to one billion tons, which is roughly the peak annual figure that was produced in the U.S. all the way up until 2014.

Recognition of environmental issues associated with coal led to various government initiatives and legislation over the years including the EPA’s Clean Air Act during the 1970s. Coal use in the U.S. has dropped consequently in recent years, especially since 2014, however, coal still powers around a third of the U.S. electricity currently.

China has become the world’s leading producer and consumer of coal in recent years, coinciding with their rapid economic growth over the last few decades. They consume around a quarter of the world’s coal supply, which powers around 70% of the country’s energy needs. However, a move away from coal in China in the very recent past has begun with the objective to consume cleaner energy sources.

How is Coal Produced?

As one might imagine, coal must first be mined from the ground. Many coal deposits are fairly near to the earth’s surface while others lie deep underground. Coal deposits are also referred to as coal beds or coal seams. Modern mining methods allow coal miners to easily reach most coal reserves to produce three times as much coal in one hour than in 1978.

There are two primary methods for removing coal:

1. Surface mining is the method usually employed when the coal is located less than 200 feet (61 meters) underground. Surface mining uses large machines that remove the topsoil and other layers of rock. This is known as the overburden and once it is removed, the coal beds are exposed. Mountaintop removal is a form of surface mining that is commonly used to remove the tops of mountains, as the name suggests, by the use of dynamite to expose the coal seams. Once the coal is extracted, the area is sometimes covered by topsoil for planting grass, trees and other foliage. Surface mining is the preferred method to remove coal as it tends to be more cost effective than underground mining.
2. Underground mining, also known as deep mining, is required when the coal bed is located deeper underground. Some underground mines are over 1,000 feet (305 meters) deep and have tunnels and shafts that extend for miles (or kilometers). Elevators are needed for miners to drop down the deep mine shafts where they subsequently take small trains down long winding tunnels to reach the coal. Large machines are used to carry the coal back out of the mines.

Once the coal is extracted it must be processed. The coal is often sent to a coal preparation plant (CPP also known as a coal handling and preparation plan, coal handling plant, prep plant, tipple or wash plant) near the extraction site. These facilities wash the coal of soil and rock and then crush it into graded sized chunks, also known as sorting. Next the coal is stockpiled in preparation for transportation to market, and often, loaded into rail cars, barges or ships for transportation.

Transporting coal is a bit of a tricky business as the cost of transportation is often more than the cost of actually mining the coal. Many enterprises that require coal for fuel, such as power plants, locate themselves near coal mines to lower the cost of transportation. Coal transportation can be done in a number of different ways.

1. Conveyors, trams and trucks move the coal short distances from the mines or CPPs to consumers nearby or to other nearby modes of long-distance transportation.
2. Trains, which in the U.S. transport nearly 70% of coal deliveries, can be used to move the coal at least some of the way towards the consumer.
3. Barges transport coal over bodies of water such as rivers and lakes.
4. Larger ships transport coal over oceans and seas.
5. Slurry pipelines, which are specially engineered pipelines, carry coal mixed with water over large distances. The coal and water mixture, known as slurry, is pumped to the final destination and the water is then filtered out.

Where is coal found?

According to the World Energy Council (WEC), coal is the most abundant fossil fuel in the world. It is found all over the world, however, the majority of recoverable reserves by region are found in Asia, Europe and North America. You can see this in the graph image below.

The world currently consumes over 7,800 million metric tons of coal per year for things such as power generation, iron and steel production, cement manufacturing and conversion to liquid fuel. Below is a graph of the world’s top 10 coal producing countries according to the WEC.

What is coal used for?

As previously mentioned, coal is used mostly for power generation, industry  and conversion into gas and other liquid fuels.

Electric Power

Coal currently fuels about 40% of the world’s electricity, which is forecast to continue for the next few decades according to the WEC despite moves toward cleaner energy sources by many nations across the globe. Just like the days of the Industrial Revolution, coal is burned in modern-day power plants to produce steam. The steam then turns turbines, which generate rotary mechanical power, which in turn generates electricity.

Industry

Numerous industries use coal and coal byproducts to produce heat. Concrete and paper industries burn coal for this purpose during the production process. Coal is a major part of the production process of steel, however, indirectly. Coking coal is produced by baking coal in furnaces. This coking coal is used to smelt iron ore to create iron which is the major input in the steel making process. 97% of all iron ore mined is actually destined to for the production of steel. Learn more about that in our commodity explainer on iron ore.

Conversion of coal into gas and liquids

Coal can be converted into gases and liquids that are used as fuels or processed into chemicals to be used to produce other products. These gases and liquids are referred to as synthetic fuels or synfuels. Synthetic fuels produce fewer air pollutants when burned than coal that is burned directly.

Coal and the environment

Coal has gotten a bad rap in recent years mainly due to its effects on the environment. The negative effects of coal mining largely have to do with the potential for runoff that can contaminate nearby lakes and rivers. This is especially true with regard to surface mining. Laws in countries like the U.S. require that dust and water runoff be controlled and that when the mining area is abandoned, it be left close to its original condition.

Underground mining tends to have fewer effects on the environment, however, polluted water can seep from underground mines similar to surface mines. Another issue associated with underground mining is methane gas that concentrates in the tunnels of the mines. Sometimes the methane gas can cause explosions while emissions can harm the atmosphere. Methane emissions from abandoned coal mines accounted for 10% of all U.S. methane emissions in 2014.

Emissions from burning coal is probably the most notable environmental issue related to coal use especially carbon dioxide, which is thought to be the principal contributor to the greenhouse effect and climate change. However, there are several major emissions that result from coal combustion:

• Sulfur dioxide (SO2) – contributes to acid rain and respiratory illnesses
• Nitrogen oxides (NOx) – contributes to smog and respiratory illnesses
• Particulates – contribute to haze, smog, lung disease and other respiratory illnesses
• Carbon Dioxide U(CO2) – primary greenhouse gas produce from burning fossil fuels
• Mercury and other heavy metals – link to neurological and developmental damage in humans and animals
• Fly ash and bottom ash – residues created by burning coal at power plants

Although fly ash released into the air through smokestacks was once common, there are now laws that require emissions of fly ash to be captured by pollution control devices in most places. Ash is often stored in special facilities near power plants or put in landfills. Nonetheless, there are still environmental concerns regarding the pollutants from the ash leaking into ground water.

What is clean coal?

Clean coal is a term that has been popularized recently, often for purposes of public relations, that refers to coal pollution mitigation. This is a series of technologies and systems that seek to mitigate the environmental effects of burning coal.

There are several technologies deployed to mitigate coal pollution, however, clean coal is generally used to refer to what is called carbon capture and storage (CCS).

CCS is the process of capturing waste CO2 from coal fired power plants, and other fossil fuel power plants, transporting it to and depositing it in a storage site, such as an underground geological formation, to prevent it from escaping into the atmosphere.

In addition to CCS, power plants use what is called flue gas desulfurization, also known as scrubbers, to filter out sulfur from the smoke emanating from smokestacks. There are also several other technologies that reduce sulfur, nitrogen oxides, and other impurities from coal.

Coal price outlook

Thermal coal refers to types of coal generally used for power generation. Thermal coal prices slid in recent days following measures by Chinese authorities to limit the surge in import prices, despite tight coal supplies and frosty weather. On 9 February, the spot price for Australian Thermal Coal was USD 101.2 per metric ton. The price was down 5.5% from the same day in January and was 0.5% lower on a year-to-date basis. The price was up 26.8% from the same day last year. A cold snap across the north of China, a strong yuan and multiple reports of coal shortages in the Chinese power industry had prompted prices for Australian thermal coal—which is mainly exported to China—to increase in late January, reaching an over one-year high of USD 109.0 per metric ton on 29 January. Prices for the commodity have eased moderately since, following a partial sell-off in most energy commodity markets and Chinese measures to clamp down on the surge in prices seen since last year, which has strained Chinese energy producers. The government has moved to set a ceiling for domestic coal prices at the major coal import hub of Qinhuangdao and asked railway operators to prioritize transporting coal for power use in the winter. Although these measures have dampened sentiment in the market to an extent, lingering logistics issues continue to support thermal coal prices.

Coking coal is coal used mainly for industrial purposes, largely for the production of iron and steel from iron ore. Coking coal prices have risen in recent days following sell-offs in many commodity markets, with supply disruptions in China and heavy rains in Queensland buttressing prices. On 9 February, coking coal traded at USD 198.0 per metric ton, which was 1.5% higher than on the same day last month. The price was up 2.6% on a year-to-date basis and was 18.6% higher than on the same day last year. Logistical issues in northwestern China continued to tighten the country’s market throughout January and early February, with railways unable to transfer coking coal from producers to users quickly enough. This supported overseas prices for the commodity, which was compounded by fears in early February that heavy rains disrupted some supply operations in Queensland, a major Australian port. However, Chinese efforts to keep a lid on domestic coal prices have kept coking coal prices from rallying further in early 2018.

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So there you have it: Another commodities explainer from FocusEconomics. We cover 33 commodities with our consensus forecasts for commodities prices. If you’d like to download a sample of our Commodities Consensus Forecast report, click on the button below.

We’ll just keep rolling along with our commodities explainer series, however, if there are any other commodities explainer posts you’d like us to do next, send us an email at blog@focus-economics.com.

Read some of our other Commodities Explainer posts:
What is the difference between Brent and WTI crude oil?
Gold: A History of Obsession – Part 1
Gold: The most precious of metals – Part 2
Gold: The most precious of metals – Part 3
Iron ore: A most underappreciated commodity
Copper: The first metal mastered by man