World Energy Outlook 2006

� Exchange rates: A drop in the value of the dollar would increase supply costs,
which are generally priced in local currencies, relative to export revenues,
which are priced in dollars.
� Taxation: Changes in tax and royalty policies and other charges can have a
major impact on the profitability of coal projects.
� Geology: The development of new seams at both existing and new mines
can raise operating and processing costs, as development moves to less
accessible deposits or seams that are located further from the mine head and
existing processing and transport infrastructure.
� The need for new transport infrastructure: Most coal-export ports are
currently operating at close to capacity and the scope for expansion at
existing facilities is often limited. Building new ports is expensive – typically
around $15 per tonne of annual capacity. In the United States, Russia and
China, coal is transported by rail on networks that are frequently inadequate
even for the volumes now carried.
� Seaborne freight rates: Chinese demand for dry bulk goods is driving the
shipping market and keeping utilisation of the shipping fleet at over 90%.
Orders for new vessels are at an all-time high. As new capacity becomes
available in the next few years, freight rates are likely to ease.
� Safety concerns: Coal-mining safety remains a major concern, particularly
in developing countries. In China, over 6 000 men lose their lives each year
in coal-mining accidents, mainly in the small private and collective mines in
towns and villages. Even in developed countries, accidents still occur
occasionally.
Global coal industry investment needs over the next two-and-a-half decades
amount to about $563 billion in the Reference Scenario. Unit investment costs
to meet the increase in demand are expected to average about $50 per tonne
per year for new supply capacity, including the cost of sea freight. Currently,
there are plans to add about 62 million tonnes per year of steam and cokingcoal
production capacity at existing mines, compared with 35 Mt of capacity
at new greenfield mines. In the longer term, capacity is expected to come
increasingly from greenfield developments.
The recent surge in demand for coal has had an inflationary impact on mining
costs, averaging about 9% in 2005 for materials. With lead times for mining
equipment now extending to a year or more and with shortages of skilled
labour, these costs have also risen significantly. Our projections assume that this
boom cycle will be short-lived and that coal supply and demand will balance
at the prices assumed (see Chapter 1).
136 World Energy Outlook 2006 - THE REFERENCE SCENARIO
© OECD/IEA, 2007