Coal

FIRST PERSON By Alex Magno (The Philippine Star) Updated October 18, 2012 12:00 AM 

Comparatively higher power costs in the Philippines is a major factor explaining the decline of our manufacturing sector and our small share of direct foreign investment flows into the region. Higher power costs, in turn, are the outcome of what experts call the “energy mix”: the distribution of the various means by which we generate power.
In the best of all worlds, the ideal “energy mix” should be one predominantly reliant on hydroelectric generation. It is clean. It is renewable. It is cheap.
Unfortunately, we are a nation of small islands and therefore small rivers. Available water flow to run turbines is scarce and never constant. In the dry season, hydroelectric generation drops. This is the reason why the island of Mindanao, reliant on hydro plants, suffers power shortages during the dry months.
A secondary reason why power is expensive here is our reliance on imported fuel to run our power plants. We import nearly all of our oil needs and a large portion of our coal requirements. That makes us vulnerable to global price fluctuations and scarcities.
The solution here is obviously to reduce reliance on power plants dependent on imported fuel as well as to increase domestic production of our fuel requirements. Our strategy for energy security ought to be anchored on these.
Happily, we have over time become less reliant on oil-fired power plants (compared to the unhappy days of severe power shortage when we had to quickly build plants powered by bunker fuel). At present, 35% of the country’s electricity is generated using coal-fired plants, 29% by plants using natural gas, 17% by geothermal plants, 12% by hydroelectric plants and only 9% by oil-fired plants. This is a much improved “energy mix.”
By tapping into our offshore natural gas fields and adding geothermal plants, we can improve our “energy mix” even more. The good news, too, is that we have discovered high grade coal in Mindanao. This will enable us to reduce coal importation and replace that with domestic coal supplies.
From 1998 to 2011, we imported about 76% of our domestic coal requirement. Over the next two years, coal imports could drop to 60% of requirements even as we increase the number of our coal-fired plants.

With more domestic coal production, we could soon approximate the global “energy mix” profile. About 43% of global electricity is generated using coal plants. If we finally reach a decision not to go nuclear, the mothballed Bataan nuclear power facility could be converted into a coal plant.
Unlike oil, coal prices are less to price fluctuations. Since the commodity is mainly used for power generation, the supply and demand configuration is more stable.
By 2014, with new coal-fired plants, our annual coal requirement is projected to be about 15.28 million metric tons. The power generation will consume about 85% of that.
Our domestic coal production last year was 7.6 million metric tons. One producer, Semirara, accounted for 96% of that total. Clearly there is enough consumption demand to support other domestic producers of coal.
A second player is now in the game. Coal Asia completed its initial public offering this week, selling P800 million worth of shares to individual and institutional investors. Proceeds from this public offering will be used to bring its Davao Oriental mine into production in 2014 and its Zamboanga Sibugay mine in 2015. Geological studies indicate the two mines have a potential coal resource of 120 million metric tons.
Because these mines have higher grade coal deposits, Coal Asia is looking to export some of its production to neighboring Asian countries. On the assumption of $80 per metric ton, Coal Asia projected its 2014 income at P500 million. At present, however, coal prices hover at about $90 per metric ton, indicating a higher income potential.
Independent valuation of Coal Asia stands at P12.5 billion. With market capitalization at P4 billion, the company is now valued at least three times its share price. No wonder there was such a rush to grab shares of the company.
Semirara Mining offered its shares at P1 each. Today, Semirara shares are trading at P225 or 225 times its par value. Coal production is such an attractive investment window.
Coal Asia holds exploration and development rights to the second largest identified coal reserves in the country. It is believed the company could easily become the largest coal producer in the country in a few years.
From the identified deposits alone, we may never be entirely self-sufficient in the coal we need to generate electricity, but the development of local sources of the fuel will cut imports significantly. Future exploration could confirm more deposits, of course. Present profitability of coal producers will encourage more exploration.
It is a stroke of good fortune that coal deposits have been confirmed in Mindanao. The island will need many new coal fired plants to reduce its dependence on hydroelectric plants and avert power shortages in the next few years.
What is important is that the final cost of producing the energy we need climbs down to make our power costs more competitive. We can never aspire for a strong manufacturing base that employs more people in sustainable jobs for as long as our power costs are excessive.
Energy pricing will be the critical determinant in shaping our people’s economic future. Unless we are able to support a growing industrial base through economical energy pricing, creating employment for our people, we will forever be doomed to exporting our manpower to the rest of the world.    source