India is one of the world’s leading importers of thermal coal, which is used to power the country’s rapid infrastructural growth and meet its increasing domestic demand for energy.
While great strides have been made to further develop India’s coal mining and extraction capabilities, demand for energy is outpacing production. In order to redress the balance between supply and demand, we must look at the opportunities and challenges of realising India’s potential in the global energy mix.
India’s untapped resource
Recent figures from BP’s Statistical Review of World Energy show global coal reserves of 861 billion tonnes. Of this, India’s indigenous reserves account for 286 billion tonnes of coal.
At GAC India we cover 60 of the country’s ports and have seen a marked increase in coal imports in recent years, particularly across the east and west coast terminals. Although India has a wealth of indigenous supply, it does not yet have the capability to mine quantities large enough to meet its own domestic demand for thermal power. As a result, it imports vast quantities of coal from South Africa, Indonesia and Australia. It is the country’s power stations and steel makers that are driving the increased import activity, as India continues down the path of largescale infrastructural development and increasing use of electrical power.
The demand-supply gap for coal in India during 2011-2012 was 114 million metric tonnes (mmt), and this is expected to rise to an estimated 200 mmt by 2017 as the Indian economy, although slowing, still continues to grow, and with it, the demand for natural resources to power the further development of domestic industries. Putting it another way, India’s coal production grew by 5 percent in 2011, which is a marked increase. Indeed, India was the world’s fourth largest coal producer in 2011, behind Australia, the USA and China. However, India’s coal imports also increased by 45 percent for the same period, over and above the 14.2 million tonnes of coal imported in 2010.
Weighing up the costs
India’s import of coal is important to the global energy map, particularly for the coal producers in Australia, Indonesia and South America, from whom its coal imports are sourced. However, the costs of importing energy are considerable. The cost of thermal coal at ‘free on board’
or FOB rates – at the point of sale and excluding shipping and insurance costs – has fluctuated considerably in recent years. This is only part of the cost, with freight rates and onward transportation costs as well as the increased price of bunker fuels adding further to the cost of shipping coal. In fact, sea freight costs form around 50-60 percent of the total transportation costs of coal and 10-15 percent of total landed cost, depending on the origin of the import. The volatile exchange rate between the US dollar and the Indian Rupee also poses challenges for Indian coal buyers, with implications for the energy security of the country’s power plants and all the businesses and consumers that rely on them.
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