IEA: COAL TO CONTINUE TO DOMINATE FOR SEVERAL YEARS

Karen Frantz
GHG Monitor
12/20/13

Coal’s dominance in power generation appears set to continue for years to come, according to the International Energy Agency’s 2013 Medium-Term Coal Market Report, released this week. The report finds that coal accounted for the largest demand growth for all fossil fuels in 2012 and that demand for coal is expected to grow at 2.3 percent per year for thermal and met coal for the next five years, largely driven by demand in non-Organization for Economic Cooperation and Development (OECD) countries. “With 164 Mtce of growth in coal demand by the end of the outlook period, India leads the way behind China,” a summary of the report said, finding that 1 billion people in India and over 600 million people in the Association of Southeast Asian Nations countries “have per-capita electricity consumption of around 1,000 kilowatt hours per year, versus consumption of more than 8,000 kilowatt hours per capita in OECD member countries” and that coal-rich countries such as China, India, Indonesia, Viet Nam and others “will rely on coal to provide people with power.”

However, the report also found that steam coal prices have been driven down by oversupply and lower-than-expected demand, and those low prices impact demand and supply differently. “In China, while many small and medium-sized producers are losing money, big companies are expanding operations, taking advantage of lower costs stemming from rationalization and better economies of scale. In principle, met coal producers could react earlier than steam coal producers, as greater concentration on the supply side facilities production discipline,” the report’s summary said. In addition, it said that low coal prices could lead to the delay, postponement or abandonment of new coal projects announced in countries such as the United States, Australia and Canada.

China ‘Center of the Coal World’

The IEA projected that China will remain “the center of the coal world,” with China making up half of global consumption and 60 percent of global coal demand in 2012. It also was the world’s largest importer of coal in 2012, IEA said. “With the addition of more than 600 Mt of domestic coal shipped from northern ports to the south, China is receiving roughly as much seaborne coal as the rest of the world combined,” the report’s summary said. “This makes arbitrage between domestic and imported coal in China’s southern coast pivotal to coal markets developments.”

But the IEA noted in its report summary that its projections are “strongly subject to Chinese uncertainties.” “The staunch commitment of the new Chinese government towards more efficient, sustainable and environmentally friendly growth, together with air pollution problems that have exacerbated public and governmental concerns over environmental issues, will accelerate the phasing out of old facilities, the adoption of cleaner technologies and the implementation of coal consumption cuts in some regions,” it said. “However, the degree to which curtailed coal demand can prove compatible with high gross domestic product growth is unclear. Two opposing trends appear—a rebalancing of the economy into a less energy-intensive model and the establishment of an urban middle class with increasing power needs. Efforts to diversify the energy supply will face drawbacks, such as domestic gas scarcity and renewable costs. On the supply side, where many coal producers’ costs are over price levels, any reaction in any direction will have strong implications on international markets.”

Future Role of Coal

IEA Executive Director Maria van der Hoeven said that coal in its current form is unsustainable due to its contribution to the rise in global CO2 emissions, and added that “radical action” is needed to curb greenhouse gas emissions in comments delivered at the report’s launch at an event held in Paris Dec. 16.  But, she said, that action is currently lacking. “Progress on [carbon capture and storage] is effectively stalled, and a meaningful carbon price is missing,” she said.

She also said the role of coal in the world’s energy future needs to be considered. “There is no denying the controversial reality of coal, and its dominance of power generation worldwide,” she said. “No fuel draws the same ire, particularly for its polluting qualities both locally and in terms of greenhouse gas emissions. And yet no fuel is as responsible for powering the economic growth that has pulled billions out of poverty in the past decades. As we look to the long term, we must ask what role coal has to play in the energy mix that we want to achieve—because there will be a role. But without mitigating the polluting effects of coal, pursuing business as usual will have enormous and tragic consequences.”