Coal is back.

Although coal is regarded as a 'dirty' form of energy, it is still one of the cheapest forms available. The demand for coal is growing, especially in Asia. Can South Africa, one of the world's leading producers take advantage of this situation? Benedicte Chatel attended a conference organised by l'Institut Francais du Petrole in Paris. Here is her report.

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Prices of coal have gone rocketing this year, increasing more than 50% to reach over $100 a ton. But coal remains six to seven times cheaper than crude oil, making it very attractive to all energy producers, mostly electricity producers. And this is good news for South Africa which is the number five world coal producer and number four exporter.

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For the man in the street, coal remains very much an ageing source of energy, of people working hard in dark mines, something very much linked to pollution and bad health. But to leaders of countries like China, the US or South Africa, coal is the easy way out of a severe energy crisis that is crippling their economic growth.

The buoyant Chinese economy needs more and more electricity. And it has plenty of coal, being the world's biggest producer (2,482m tonnes) as well as consumers.

Petroleum is expensive and everyone knows that prices will remain high because the resource is going to get scarce. One cannot count on it to produce electricity. Therefore, leaders look to other forms of energy. Hydropower? Not every country is well endowed with water resources. Nuclear? It takes roughly 10 years between making the decision on building a nuclear power plant and the start of production. Gas? It is linked to petroleum resources and prices. Green energy such as solar or wind energy? Governments have to chip in financially to make it affordable to end users and the budgets do not always allow this to happen.

At the end of the day, it is believed that it will take a combination of several energy sources to satisfy global demand experts at the Paris meeting of l'Institut Francais du Petrole (IFP) said.

China a net importer today

But of all these energy sources, coal is the first choice for countries that are the most economically dynamic. During the course of last year only, China built new power generating units producing 105,000 megawatts (which corresponds to the whole of the electricity generating system of a country like France!) and 90% of this relies on coal. Every week, China builds a new generating unit of 1,000 megawatts. Over the next eight years, China should install as much energy generating plants as the 25 European countries put together, a total of 800 gigawatts!

No wonder that China, which exported 80m tons of coal just five years ago, is now a net importer and will probably import the same amount in five years time, says the president of IFP, Olivier Appert. And this is precisely the revolution going on today in the world's coal market, driving prices rocketing high.

Only a small fraction, 16%, of world coal production (out of a total of 4,970m tonnes, according to the World Coal Institute) is traded on world markets. Countries use up their own coal and reserves are plentiful (around 150 years). Australia is number one among exporters (231mt), followed by Indonesia, Russia and South Africa (69mt).

South Africa bets on coal

South Africa uses up locally more than two thirds of its production: Eskom and Sasol are the two biggest users, followed by the metallurgical sector and domestic use.

The other 28% is exported primarily to Europe. "In South Africa, coal is abundant," confirms Jean-Pierre Favennec, director at IFP. "And surely the country can produce more. But there is a problem of infrastructure."

What would South Africa do with extra coal production? Raise its exports? Not sure. Coal is heavy and bulky. The major South African mines are located far from Richards Bay, the world's largest coal harbour, in Mpumalanga, Free State, northern Kwazulu-Natal and Northwest provinces; major collieries are around Witbank, Ermelo and Secunda.

"South African coal is of excellent quality. It is very competitive if investments in logistics are carried out because most of the costs linked to coal are logistic costs," according to Oliver Appert. "Therefore, there is a need of investments in transport (railroad) and harbour facilities if South African coal wants to compete with Australian coal. Anyway, South Africa is closer to the European market and to North America than Australia. South Africa has, without doubt, a geographical advantage over Australia on the world map. South Africa has definitely a card to play!"

But South Africa needs first to address its huge power generating problem at home. The recent and ongoing blackouts show how crucial this issue is and one can bet that looking at the country's resources, it will turn to coal first to generate extra energy.

Today, about 77% of South Africa's primary energy needs are already provided by coal. This is unlikely to change significantly in the next two decades owing to the relative lack of suitable alternatives to coal as an energy source.

The problem that remains is that coal fired energy plants produce the most CO2 of all types of energies. And even though South Africa is a signatory of the Tokyo Protocol and active participant to the Carbon Sequestration Leadership Forum (CSLF), it is most unlikely that it would be among the first countries to have clean coal units with capture of CO2.

"South Africans have a priority: produce more electricity because they have not invested since apartheid," says Favennec. "Their power generating units are old. Adapting them to clean coal will take time. And clean coal does not solve the CO2 problem, which is the main problem. Local use of coal in households where there are large CO2 emissions is very damaging to health." Appert adds: "Clean coal means that a number of impurities are taken out of the coal as raw material, that fumes are treated so as not to let out CO2 in the electricity generation process and that there is carbon capture and storage in deep geological horizons."

Large investments (notably in R & D) and time are needed. Two things the world lacks, even if it is digging its own grave ... in coal.