Page 327 - Data Science Algorithms in a Week

308 Mayra Bornacelli, Edgar Gutierrez and John Pastrana

The consumption of thermal coal is required mainly to generate electricity and this is
an important variable for increase or decrease of demand, by the simple principle of
economics. The main consumers of coal have been China, United States, Europe and
India for 25 years (Finley, 2013). In spite of the trend of consumption in these regions, it
is possible that due to the social, political and environmental situations the consumption
of coal fluctuates suddenly and these events are not possible to measure in the models.
The principal consumer and producer of coal in the world is China, which means China
determines significantly the behavior of the price, for example: if China closes some coal
mines and the consumption of coal remains the same in the world, the price will go up,
but in the case that China reduces its consumption of coal the price of coal will probably
fall.
The level of environmental restrictions for the exploitation and use of coal, and
trends in climate change have a gradual effect on the demand for coal. On the other hand,
the price of oil, gas and coal, for some reason was always assumed to be related, but until
recently this relationship was studied and different conclusions were withdrawed. Take
the case of oil and coal: they are close substitutes, so economic theories indicate that their
prices should then be close. A correlation study found that there is causal and non-causal
relationships between oil and coal prices, that is, the cause and effect of oil to coal and
not in the opposite direction. For this reason, its conclusions point to the feasibility that
the price of coal in Europe reacted to movements in oil prices, and statistical evidence
indicates that, in the face of a rise or fall in oil prices, the price of coal reacts.
In Delphi, one of the variables with the greatest consensus was the relationship
between the US Dollar and the currency of the main producing and consuming countries.
This variable was used to represent the economy of the different regions and thus to
analyze the behavior of this relationship with the prices of the thermal coal. According to
historical behavior, we know that there is an inverse relationship between the prices of oil
and coal, whose transaction is done in dollars, and the value of this currency. The
devaluations of the dollar have been present with high prices in these commodities,
whose value increases as a compensatory effect in the face of the devaluation of this
currency.
Shale gas is a substitute product for coal. Extraction requires unconventional
technologies because it does not have sufficient permeability. Initially it was thought that
Shale Gas was less polluting than coal, so it started to be implemented as a substitute,
however academic research has shown that by fracturing rocks for extraction and gas,
leaks to the environment are much more polluting than coal, in addition to important
consequences for the soil. Since 2010 shale gas has had a major commercial boom in the
United States, for this reason the price of coal had a decrease for all those countries that
began to use it as a source of energy. It is not very clear yet the prospect of extracting and
marketing shale gas, but it is an alternative source for coal, so this variable was selected
with consensus in Delphi.