US Coal to Asia: Globalization in Action

This week we have been focusing on globalization, processes that promote world-wide exchanges of national and cultural resources. International trade has been in existence since the earliest days of international exploration and human interaction. The modern economy moves a multitude of goods across international lines, everything from bananas and wheat to airplanes and cars.

This is a perfect tie to the surge of interest in exporting US coal to Asia, mainly China. As referenced in Norm’s blog, China is the center of globalization today. We are importing large quantities of goods and services from China, to the magnitude of $539 billion in 2011 according to the Office of the United State TradeRepresentative. Exports totaled $129 billion; Imports totaled $411 billion. The U.S. goods and services trade deficit with China was $282 billion in 2011. 

International competitive advantage trade theory would describe the coal trade system as the country with the cheapest, easiest production of coal to be the most competitive in the market. China boasts the world's third largest coal deposits, and leads the world, both in the production and the consumption of coal. The United States on the other hand, is the largest coal market open to foreign investors. Inaddition to being the second largest exporter of coal, the United States is the world's second largest coal producer. So how are recent changes in the coal market now making it competitive to export coals from the US into China and other Asian countries from Pacific Northwest ports?

My guess is limited resources globally, couples with an explosion in demand for this energy resource. Coal consumption in China increases at a rate of 10 percent a year, and continues to face challenges of keeping up a domestic supply to meet this demand. This increased demand in China is occurring at the same time the US is seeing a drop in demand domestically. To ensure a long term market is accessible, they see investment in export to China as a longer term project. The U.S. power generation sector saw demand fall by 1% between 2000 and 2010, while demand for coal in China’s electric generation sector surged by 163% during that same time to more than 1.5 billion tonnes per year. 

It is expected that China may import as much as 250 million tonnes of coal during 2012 (coking and thermal coal combined). As such, Wyoming and Montana coal miners have a solid opportunity to market their low-cost, clean burning Powder River Basin coal to power plants in Coastal China.

Foreign investors have become increasingly important in U.S. coal over the past decade or so. The industry is eyeing the region as a hub for export because of its proximity to Asia, said Al Knapp, project manager for Ambre Energy. He said multiple countries, including Japan, which is moving away from nuclear power – are looking to coal as a cheap and reliable energy source. Presently, most coal is shipped from the East Coast.

 “I think there is an opportunity in Asia, and like any good business person would want to do, you go where your market is,” Knapp said. “The Pacific Northwest is the quickest route there.” 

Coal industry experts predict that U.S. exports will surge to more than 100 million tons per year over the coming decade as consumption shifts away from the United States, where electric utilities are relying increasingly on natural gas and other fuel sources for power generation. The coal would go to emerging markets in China, Southeast Asia, India and Latin America where coal remains a primary fuel for electricity.

Even with a booming market, and a large supply of US coal, the export project along the US West Coast is not a fast solution. The string of Pacific Northwest terminals has garnered skepticism and outright opposition from those who believe a massive coal terminal will diminish air and water quality in the region while increasing noise, congestion and wait times at rail crossings. So the actuality of this global coal market may take some time before it is realized from the Pacific Northwest, and other coal exporting countries like Australia, Russia and South Africa may be quicker to respond to this global market.