StockGuru Blog: KAL Energy Inc. (OTCBB: KALG) Coal Mining – Exporting to China on the Mark

KAL Energy Inc. (OTCBB: KALG) Stock Guru ProfileStockGuru brings you Geography 101 and Indonesian Coal Mining — What do they have in common? Rapidly expanding and unprecedented demand in Asian countries and proximity.

KAL Energy has the rights to two large coal concessions situated near the Mahakam River in North Eastern Kalimantan, Indonesia.

Formerly known as Borneo, Kalimantan is the world’s second largest island. The Republic of Indonesia is an island republic of Southeast Asia, constituting most of the Malay Archipelago. Indonesia is the world’s fourth most populous country after China, India, and the United States. Indonesia is located south and east of mainland Asia and north and west of Australia. About half of Indonesia’s nearly 13,700 islands are inhabited; all are located in the Indian and Pacific oceans. The islands stretch across 5,100 km (3,200 mi) in the region of the equator, a distance nearly one-eighth of the Earth’s circumference. Link here for map showing Kalimantan.

Indonesia is strategically located for export to China. The coal is floated by barge down the river to the port and shipped from there.

China’s emergence as a net coal importer is shaking up the Asia-Pacific market, potentially lighting a fire under regional coal prices and intensifying competition with consumers like Japan over long-term supply contracts.

As recently as 2003, China was the world’s second-ranked coal exporter, but a major rise in demand spurred by higher thermal power generation to fuel growing electricity needs has changed the picture dramatically.

Those coal exports fell 17% in 2005, and by a further 11.7% last year, to 63 million tons.

Last year, coal imports dropped nearly 47%, to 38 million tons, and in January the country swung into deficit for the first time. While one month’s data can be misleading, the trends are clear.

Going ahead, coal demand will be buoyed by multibillion dollar coal-to-liquids projects either being constructed or investigated, as China seeks to offset stagnant domestic crude oil output with synthetic fuels.

“The importance of coal to China’s national energy security could shift in the future, and energy policy with it,” said Steven Knell, an analyst with consultancy Global Insight.

“This is especially true if synthetic petroleum production picks up in China the way it should.”

Coal accounts for 70% of China’s energy needs and while there is no danger of its reserves running out for decades at least, the country’s rapid growth in domestic production is pushing the mining industry close to its limits.

In 2000, China produced around 1 billion tons of coal domestically, but this rose to 1.6 million tons in 2003 and surged again to 2.325 billion tons last year.

The National Development & Reform Commission, China’s economic planning agency, is forecasting production of 2.6 billion tons by 2010, but analysts think this volume will be insufficient to cover domestic demand at that time.

Ghee Peh, head of Asian mining research at UBS, said there is now a situation that’s “unprecedented in the history of coal mining.”