All the coal in China: our top ten charts?

China's coal industry

Chinese coal provides 15% of the world’s energy, equivalent to 4 Saudi Arabia’s worth of oil. Global energy markets may become 10% under-supplied if this output plateaus per our ‘net zero’ scenario. Alternatively, might China ramp its coal to cure energy shortages, especially as Europe bids harder for renewables and LNG post-Russia? Today’s note presents our ‘top ten’ charts on China’s opaque coal industry.

China’s coal industry provides 15% of the world’s energy and c22% of its CO2 emissions. These numbers are placed in context on page 2.

China’s coal production policies will sway global energy balances. Key numbers, and their impacts on global energy supply-demand, are laid out on page 3.

China’s coal mines are constellation of c4,000 assets. Some useful rules of thumb are given on the breakdown on page 4.

China’s coal demand is bridged on page 5, including the share of demands for power, industrial heat, residential/commercial heat and coking.

Coal prices are contextualized on page 6-7, comparing Chinese coal with gas, renewables, hydro and nuclear in c/kWh terms.

Coal costs are calculated on page 6-8. We model what price is needed for China to maintain flat-slightly growing output, while earning double-digit returns on investment.

Accelerating Chinese coal depends on policies, however, especially around a tail of smaller and higher cost mines. The skew and implications are explored on page 7-8.

China’s decarbonization is clearly linked to its coal output. We see decarbonization ambitions being thwarted in the 2020s, per page 8.

Methane leaks from China’s coal industry may actually be higher than methane leaks from the West’s gas industry (page 9).

Chinese coal companies are profiled, and compared with Western companies, on pages 10-11.

For an outlook on global coal production, please see our article here.

East to West: re-shoring the energy transition?

re-shoring the energy transition

China is 18% of the world’s people and GDP. But it makes c50% of the world’s metals, 60% of its wind turbines, 70% of its solar panels and 80% of its lithium ion batteries. Re-shoring the energy transition will likely be a growing motivation after events of 2022. This 14-page note explores resultant opportunities.

World events in 2022 have created a new appetite for self-reliance; avoiding excessive dependence upon particular suppliers, in case that relationship should sour in the future. China’s exports are 5x Russia’s. And it dominates supply chains that matter for the energy transition. The trends and market shares are quantified on pages 2-4.

There are five challenges that must be overcome, in order to re-shore value chains from China to the West: input materials, energy costs, 2-3 re-inflation risks, dumping and general Western NIMBY-ism. We outline each challenge on pages 5-6.

Re-shoring the energy transition and its best opportunities are summarized, looking across all of our research, for metals and materials (page 7), wind (page 8), solar (page 9) and batteries (pages 10-11). In each case, where would be the most logical to site the infrastructure, and which companies are involved?

An unexpected implication of re-shoring these value chains is that their underlying energy demand would be re-shored too. Our current base case is that Western energy demand per capita has peaked and Western oil demand is in absolute decline. These markets may be re-shaped, with resultant opportunities for infrastructure investors (pages 12-14).

For an outlook on China’s coal industry and how we compare Chinese coal companies to Western companies, please see our article here.

Border taxes: a carbon curtain has descended?

As Europe advances its decarbonization agenda, a ‘border adjustment mechanism’ has now been proposed to mitigate carbon leakage. Its initial formulation is modest. But it will snowball. And ultimately divide the global economy in two. Hence this 15-page report lays out our top five predictions for CO2 border taxes to reshape energy markets and the world.

In 1946, Winston Churchill made his famous ‘Iron Curtain’ speech, prophesizing decades of tensions between different economic systems in the West and elsewhere. The concept of a carbon curtain is similar, and is laid out on pages 2-4 of our report.

These wheels are now firmly in motion, as Europe has proposed a carbon border adjustment mechanism, in order to stem carbon leakage, as it tightens its environmental policies. For those who prefer not to read the Commission’s entire 291-page leviathan, we have summarized the key features on pages 5-6.

Expansion is inevitable. Page 7 argues for domino effects, where CBAM will be emulated by other Western economies; and then broadened, first into the manufacturing sector, then universally.

There will be five investable consequences of these escalating border taxes, which we spell out on pages 8-15. They could be extremely constructive for the gas/LNG industry, pre-existing renewables assets, and some lower carbon economies. But we also see major losers in the coal industry, higher-carbon countries and victims of inflation.

Nuclear power: what role in the energy transition?

Uranium markets could be 50-75M lbs under-supplied by 2030. This deficit is deeper than other commodities in our roadmap to net zero. Demand is driven by China, constructing reactors for 50-70% less than the West, yielding zero carbon power at 6-8c/kWh. This 18-page note presents the outlook for nuclear in the energy transition and screens uranium miners.

An overview of the nuclear power industry is outlined on pages 2-5, in order to understand the market, its sub-components, and the energy-economics of nuclear power generation.

Capex costs have held back nuclear growth in the West, as heavy investments and devastating delays can kill IRRs and require 16c/kWh levelized costs (pages 6-7).

China is different, constructing new reactors for 50-70% less than the West, yielding passable economics at 6-8c/kwh, while generating clean baseload power (pages 8-9).

China drives our demand forecasts, underpinning 75% of future global demand on our ‘roadmap to net zero’, with stark upside as a diversification to under-supplied LNG markets, if China exports its technology and as new start-ups require inventory builds (pages 10-13).

Impacts on the uranium market are quantified on page 14. We are bridging to 50-75M lbs of under-supply by 2030, with risks skewed to the upside.

Uranium prices must re-inflate, from sub-$30/lb to $60-90/lb marginal costs (page 15).

Uranium miners are screened on pages 16-18, including profiles of ten public companies, from incumbents to early-stage developers. Rare Earth metals are a common by-product of uranium mining and also relevant to the energy transition.

Rise of China: the battle is trade, the war is technology?

China’s pace of technology development is now 6x faster than the US, as measured across 40M patent filings, contrasted back to 1920 in this short, 7-page note. The implications are frightening. Questions are raised over the Western world’s long-term competitiveness, especially in manufacturing; and the consequences of decarbonization policies that hurt competitiveness.

Our conclusions are presented in this short note from tabulating 40M patents in the US and China back to 1920.

China first filed more patents than the US in 2007, and filed 6x more in 2019. Our charts compare the US versus China across multiple industrial categories, presenting implications for trade and energy policy.

The long-term history of patent filings is also compared globally, for the US, for China and for Japan. In some countries, the pace of patent filings has been 90% correlated with GDP growth.

Copyright: Thunder Said Energy, 2022.