9. COAL

Today, the Indian coal sector is at a crossroads. On the one hand, the Indian economy is expected to grow considerably in the coming years, and so too are the three largest coalconsuming sectors: electricity generation, iron and steel and cement production. The prospects for the electricity sector are bright, driven by economic development, the increasing number of people with access to electricity and the growing middle class who will expand their use of air conditioners and other appliances. On the other hand, climate commitments made by India (within the framework of the Paris Agreement), air pollution, water stress in some areas and other environmental issues, and the declining costs of renewables, in particular solar photovoltaic (PV), impact the business case of the coal sector at large. The main certainty is that, given its central role in the energy and economy in India, a part of India’s success in the future is linked to the successful and efficient management of the coal sector.

Supply and demand

Resoures and reserves

According to the latest Geological Survey of India of April 2018, India holds proven coal reserves of 148.79 gigatonnes (Gt) and total coal resources2 of 319.02 Gt. The proven lignite reserves amount to 6.54 Gt, while total lignite resources are 45.66 Gt.

Most of the hard coal in India is bituminous coal, with some sub-bituminous reserves. Indian coking coal has a high ash content, is mostly used for thermal purposes and is generally not suitable for the production of metallurgical coke. The regional distribution of reserves mirrors the production profile (see below). Most of hard coal resources are located in seven States: Jharkhand, Odisha, Chhattisgarh, West Bengal, Madhya Pradesh, Maharashtra and Telangana. And lignite resources are concentrated in three states: Tamil Nadu, which accounts for 80% of lignite resources, Rajasthan and Gujarat.

To support exploration of coal and lignite, the GoI plans to spend INR 7 billion (USD 50 million) in 2018/19 and around INR 10 billion (USD 72 million) in 2019/20.

Domestic production

Coal production in India has been increasing over recent years (Figure 9.2). In 2017 coal production totalled 726 Mt, of which 635.6 Mt was thermal coal, 47.5 Mt lignite and 40.9 Mt coking coal.

Almost 94% of the production is open pit, with the balance mined in underground mines. Production costs in India are INR 1 200/t (USD18/t) on average, lower than in most countries, even adjusted for quality, as the country has low strip ratios.3 Average costs are very much dependent on the performance of CIL, which accounts for 80% of domestic production (with an average cost of INR 1 176/t). However, production growth has not been able to keep up with demand growth, especially since the electricity sector reform of 2003, leading to increasing domestic coal supply shortages and imports (Figure 9.2).

2Resources refers to fields that are potentially valuable, and for which reasonable prospects exist for eventual economic extraction. Mineral reserves are valuable and legally, economically and technically feasible to extract.

3Strip ratio refers to the overburden (m3) removed to extract 1 tonne of coal. India has a ratio below 3 on average.

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Figure 9.2 Coal supply by source, 1973-2017

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Note: Includes hard coal (anthracite and other bituminous coal) and lignite.

Source: IEA (2019), World Energy Balances 2019, www.iea.org/statistics/.

Hard coal production in India is concentrated in four states – Odisha, Chhattisgarh, Jharkhand and Madhya Pradesh – which account for almost 80% of production. Other producing states are Telangana, Maharashtra and West Bengal, with smaller volumes produced also in Uttar Pradesh, Meghalaya and Assam. Jharkhand is the largest producer of coking coal. In 2015, out of 60 Mt of coking coal produced, only 6.1 Mt was sold as washed coking coal for metallurgical purposes.4 High-ash coal, i.e. coal with a low calorific value (CV), is predominant in India, with 70% of domestic supply in the CV range of 3 400-4 600 kilocalories per kilogram (kcal/kg) GAR (gross as received). This is lower quality than the international standards, especially seaborne-traded thermal coal, which is typically in the range of 5 000-6 000 kcal/kg NAR (net as received).5

Lignite production in India (around 47 Mt in 2017) is much smaller than hard coal, and it is produced mostly in three states: more than half in Tamil Nadu and less than one quarter each in Gujarat and Rajasthan.

Imports

To satisfy growing coal demand amid production shortages, imports have been increasing for two decades, reaching 209 Mt in 2017. During the period 2014-16 the push for additional domestic production and new mines, together with some moderation of demand growth, resulted in a temporary decline in imports.

Australia supplies most of India’s metallurgical coal imports (2017). Indonesia and South Africa are the import sources for thermal coal, and Indonesia provides 65% of thermal coal imports and Africa 25% (Figure 9.3). Other major suppliers are the United States, Mozambique, the Russian Federation and Canada.

Imports are not only the result of the consumption–production gap, but also related to other factors. First, the scarcity of low-ash coking coal in India requires imports to produce metallurgic coal for rising iron and steel production. Second, many coal-fired power plants

4Some of the high-ash coking coal has being reclassified as non-coking in recent years and, therefore, coking coal production data need to be properly interpreted.

5This is approximately 5 300-6 300 kcal/kg GAR.

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that are located along the coast (see Table 9.1) are designed to use imported coal and, therefore, the quality of domestic coal is not suitable for those plants. Third, some plants blend domestic and imported coal to achieve a better quality, increase efficiency and reduce pollutant emissions. And fourth, imports are necessary when incremental demand by coal consumers for higher supplies cannot be honoured by CIL due to logistical bottlenecks or price discrepancies.

Figure 9.3 India’s coal imports by source, 2007-17

Source: IEA (2018a), Coal 2018.

Coal consumption

Power and heat generation account for over two-thirds of coal consumption (three-quarters in terms of weight), followed by iron and steel production (almost 20%), cement (around 5%), and other industries like fertilisers, pulp and paper, non-ferrous metals and chemicals production, as illustrated in Figure 9.4. In 2017 residential and services coal use was 3.3%.

In 2018 India surpassed Japan as the second-largest steel producer in the world (with total steel production of 106.5 Mt). Around 55% of the steel in India is produced in electric arc furnaces and the remainder in oxygen-blown converters. India is the world’s largest producer of direct reduced iron, also known as sponge iron, accounting for more than onethird of global production (or 30.3 Mt in 2018). India was the third-largest producer of pig iron in the world after the People’s Republic of China (“China”) and Japan, with a total production of 71.5 Mt in 2018.

Power generation, the largest consumer of coal, has various characteristics: India has coastal (31 GW) and inland plants (159 GW), which are usually located close to mines. India has 18 GW of power plants that are designed to only use imported coal (Table 9.1). Power plants with a total capacity of 32 GW use a blend of domestic and imported coal. Plants using only domestic coal have a total capacity of 140 GW.

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Figure 9.4 Coal consumption by sector, 1973-2017

*Mainly coke ovens and blast furnaces. **Includes agriculture, forestry and fishing.

Notes: Includes hard coal (anthracite and other bituminous coal) and lignite. TPES of coal by consuming sector. Source: IEA (2019), World Energy Balances 2019, www.iea.org/statistics/.

Table 9.1 Plants designed to consume imported coal

Note: Assuming 5 500 kcal/kg coal, 38% efficiency and a plant load factor of 70%, these plants require around 45 Mt of coal per year.

The National Thermal Power Corporation (NTPC) is India’s largest coal power generator and one of the largest in the world, with 52 GW of installed coal generation capacity. Utilities owned by the state governments hold another 59 GW, while independent power

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