Australian coal exporters have experienced the biggest annual drop in thermal coal prices in more than a decade during 2019, raising doubts about industry projections that demand will continue to grow.
The spot price of thermal coal, which is burned to generate electricity, was US$66.20 ($95) last week, down more than a third from US$100.73 ($145) a year earlier.
According to the government’s latest resources and quarterly energy report, it is expected to cut export earnings from the industry from last year’s record A$26bn to A$20.6bn this year and A$18.8bn next year.
The drop in price came as China increased its reliance on domestic coal stocks and tightened its use of imported coal, particularly from Australia.
The International Energy Agency recently found global thermal coal use declined this year after rising in 2017 and 2018, but forecast a slight increase over the next five years as rising demand from India offset a shift away from it in Europe and the US.
A more detailed analysis of 2019 trends by several thinktanks found coal-fired electricity was headed for a 3% fall, the biggest drop on record after more than four decades of near-uninterrupted growth in which coal-fired power has been a primary driver of the climate crisis.
The decrease has been driven by a historically sharp reduction in Europe, where demand for coal-fired power fell 23%, and the US, where it dropped 14% in the first nine months of the year despite Donald Trump’s vow that he would resurrect the local industry.
In major Asian markets, where Australia sells its coal, the analysis found generation in China increased 0.5% but dipped in India due to a much smaller increase in demand for electricity than in recent years and a large monsoon boosting hydro energy.
For Australian coal exporters, the biggest change has been China imposing what effectively amounted to an unannounced ban on taking their product while boosting the domestic industry as it faced a trade war with the US. Several Chinese ports restricted or delayed Australian coal imports.
Tim Buckley, from the Institute for Energy Economics and Financial Analysis, said China had constrained supply from Australia while increasing it from some producers, such as Mongolia.
Beyond China’s greater emphasis on domestic production, Buckley said the fall in coal use had been driven by the rise of increasingly cheap renewable energy and liquified natural gas, a fossil fuel with about half the emissions of coal when burned but possibly more, according to some research, when extracted.
He said the drop in the thermal coal price would not necessarily continue into 2020, but current trends suggested the Australian industry could not rely on demand from south and south-east Asia continuing to grow.
Buckley’s assessment is at odds with that of the Paris-based International Energy Agency (IEA), which suggested Australia’s thermal coal exports would increase 1.6% a year until 2024 as demand from India and southeast Asia grew. The IEA report, released earlier this month, thanked experts from coal companies and the Minerals Council of Australia for their input into its analysis.
Matthew Canavan, the resources minister, recently told The Australian that Australia would “need more than Adani” to keep up with the expected growth in demand from developing Asian countries. He said that would likely lead to the opening of not just the Carmichael mine being developed by Indian billionaire Gautam Adani, but further coal mines in Queensland’s Galilee Basin.
A previous analysis by energy consultancy Wood Mackenzie found any new mines in the Galilee Basin would be expected to be in competition with existing mines in the state and New South Wales.
Buckley said the IEA had repeatedly underestimated the pace of growth in renewable energy, and it was likely Asia would follow a similar pattern as Europe and the US. He gave the example of Vietnam, which had increased its installation of solar power tenfold this year, albeit off a low base.
“Coal-fired power is down because it’s the highest marginal cost source of electricity in most markets,” he said. “Renewable energy is now available at scale and at lower prices. That will increasingly be the case.”
The government’s resources and energy quarterly report said the collapse in the thermal coal price had created major problems for US miners, leading to seven filing for bankruptcy in the past four months.
It said Australian producers had faired better due to their higher quality coal and the weaker currency, but would also be affected by market conditions. Analysts say the slump has threatened the viability of billions of dollars of coal projects.
The report said prices for metallurgical coal, which is used in steel-making and accounts for around 60% of Australia’s coal export earnings, had also fallen noticeably.
Buckley said China’s targeting of Australian coal appeared political, and was ongoing. “It introduced an artificial barrier to Australian coal on an ad hoc basis, saying it could not unload ships, and that intensified later in the year,” he said.
Last year the Intergovernmental Panel on Climate Change said that limiting global warming to 1.5C, a goal referenced in the Paris climate agreement, would require coal use for energy to fall 59-78% below 2010 levels by 2030.
The Minerals Council declined to comment.
Source: The Guardian
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