• Coal is a nonrenewable energy source.
• It’s a combustible black or brownish-black rock
composed mostly of carbon and hydrocarbons.
• However, It’s relatively cheap and abundant
than crude oil and natural gas.
• At current production levels, coal reserves are
estimated to last 155 years. In contrast, oil and
gas reserves are equivalent to around 41 and
65 years at current production levels
• Coal is used mainly in electricity, in industry, and
in the manufacturing of steel.
• 68% of total global steel production relies
directly on inputs of coal. Some steel production
relies on electric stove which is indirectly
required the inputs of coal to create electricity.
• There are many types of coal; different countries
have different standard in classifying coal in
terms of its content.
• Lignite, sub-bituminous, and bituminous coal are
commonly being used as fuel for steam electric
• We would like to illustrate that cheap and
nonrenewable energy, such as coals are
increasingly important in China as crude
oil and natural gas price surge by the
2. Cost (ex: total investment cost,
Coal Production and Consumption
• The following charts have been collected
from China statistics that give you a
general idea on:
– How much coal are represented the
percentage of total energy production and
consumption in China?
– What’s the exact number of coal produced
and consumed in China?
– What’s world position of China’s coal industry
in terms of producers and consumers?
As Percentage of Total Energy
% of Coal
70% Used out
As Percentage of Total Energy
70% % of Coal
68% out of Total
Why Less Consumption?
• It’s reasonable to believe that the Growth of
overall consumption on total energy in China
increases every year. Why coal consumption
decreases over the year from 1985 to 2005?
• We believe the percentage on the chart is
misleading. Percentage on coal consumption of
total energy decreases, but the total amount of
coal consumption didn’t decrease.
Why Less Consumption?
The following is an example:
10 years ago:
– Total Energy consumption = 1000 million tons
– Total coal consumption = 750 million tons
– % of coal used on total energy = 75% (750/1000)
– Total Energy consumption = 2000 million tons
– Total coal consumption = 1400 million tons
– % of coal used on total energy = 70% (1400/2000)
Total Coal Production
Total Coal Consumption In China
Year 1990 1995 2000 2003 2004 2005
Production 102221.0 133461.7 128297.1 163402.0 192265.5 214462.1
Consumption 105523.0 137676.5 132000.0 169232.0 193596.0 216557.5
Top Ten Coal Consumers
Countries, 2004( in million tons)
Top Three Coal Producers
(in million tons)
Coal, Oil, and Gas Price
($us per tons)
• For many years, China relied heavily on coal as
source of cheap energy. Even without gas or
crude oil, Chinese light is still able to keep
• For many years, total consumption on coal has
always exceeded the total production of coal,
because production capacity has always been
controlled by the government, and they also
import coal from other countries.
• Not only China is the largest consumers of coal,
but they are also the largest producers of coal.
Does coal help reduce world
• Most Importantly, coal is good for smoothing
worldwide inflation rate.
• If China uses crude oil or natural gas as a
source of energy to produce the product to the
importing countries, consumers from the
importing countries will have to pay more for
• On the other hand, if China uses coal as a
source of energy to produce products,
consumers from importing countries will pay less
for their product, because coal is relatively
cheaper than crude oil and natural gas.
1. There is a strong Demand for Coal; China’s GDP is
predicted to grow at 9 -10% through 2008 and 2009.
Coal is still deemed to be the cheapest sources of
energy comparing to crude oil and natural gas. It
makes more economic sense to use even more coal.
2. Information Theory: Most of us may aware of the crude
oil prices more than coal prices, because there are
much more media coverage on crude oil than coal.
Base on the information theory, the more people know
about the investment, the return will be less. However,
if the information is known to a few, the return on
investment will be high. Example: Mongolia Energy
Mongolia Energy (0276.hk)
• Invest in long position on companies that
are not popular now, but they will be
popular in the future. Don’t worry if the
company is not making money in the short
run. For example, the U.S has the biggest
reserve of coal in the world. U.S coal
companies will be a good investment
when crude oil went out soon.
• If you are risk averse, maybe the following
strategy will be interesting to you.
• Maybe in the next two years, you have
accumulated some funds for investing, but you
don’t have the time to follow the market.
• You can invest your money in low risk stock,
such as financial institutions, and most of them
do pay dividends. Once you think you have
earned enough dividend, you can use the
dividend to buy very risky penny stocks, such as
3. Sustainability: Crude oil’s reserve is equivalent to 41
years at current production level. In the next two to
three decades, we believe the supply of crude oil will
be much more intense. When crude oil is pretty much
gone, coal will be the next popular source of energy.
As a result, coal in the long run will have much more
sustainability than crude oil, because coal’s reserve
will last for 155 years.
4. Thousands of illegal coal mines are still operating in
China. Is the Chinese coal business profitable, so that
attracting more competition? If someone is
participating in illegal activities, the reward or return
must be greater than the risk of being caught or else
no one is going to do it.
Coal-fired, Wind, Nuclear, and
Consumption of a few main source
of energy in China
Which one is more expensive?
• We believe coal is still the cheapest
source of energy to generate electricity.
Let’s look at different type of methods in
1. Hydropower: use only locally and difficult to find
an ideal location to build a dam.
2. Nuclear Power: relatively new technology to
china and high investment cost.
3. Wind Power: relatively new technology and
provide very low magnitude of
electricity, the highest cost per kwh
Cost Structure Summary
• The following tables are assumed that the different type of
power plant can provide 100,000 kwh.
Total Cost to Build Cost per kwh
($ Yuan) ($Yuan)
Coal-Fired 0.5 billion 0.25 to 0.3 cents
Wind Power 0.8 to 1 billion 0.5 to 0.6 Cents
Hydropower 0.7 billion 0.2 to 0.3 Cents
Nuclear Power > 3 billions 0.41 to 0.45 Cents
Three Gorges Dam example
• “Three Gorges Dam” is the biggest hydropower in
China, and it’s also the biggest construction project
since the “Great Wall”. It’s power generation is equal to
18 nuclear power station, and it can satisfy 5% of the
• What’s the Cost of it?
• The project will take 16 years from 1995 to 2011.
• In 2008, the estimated total investment cost is
will be greater than 180 billion ($ Yuan).
• >1 million local residents had relocate.
• Can they build another one like this?
• After coal is mined and processed, it is ready to
be shipped to market. The cost of shipping coal
can cost more than the cost of mining it. It’s
important to discuss the transportation cost.
• Most coal is transported by train, and all trains
use in transporting coal in China are also using
coal as a source of energy. About 70 percent of
coal in the China is transported by train.
Sometimes, coal-fired electric power plants are
built near coal mines, and railway station to lower
Shenhua’s Asset Location
Location of All Coal Mines in China
Location of all railway in China
Location of All Major Industries in
Location of All Major Ports in China
• At this point, we believe that transportation
cost on coal is still very cheap, because all
major coal mines are concentrated relatively
close to major industries, ports, and efficient
• Chinese Ministry of the Railway said Beijing
plans to invest 1.25 trillion Yuan (U.S $160b)
by 2010 on track, trains and civil engineering.
It will make transportation and exploration
• Coal is a nonrenewable energy, and it will
only be less and less. It took 300 million
years to form, but probably we will finish
them in the next 155 years. However, we
believe that coal has much more
sustainability than crude oil. Once crude
oil is gone, coal will be the next major
source of energy.
• invest in the long-term!
Questions & Answers