A historic drop in coal-fired electricity generation will not sway global coal demand from its upward trajectory through to 2024, though growth will not be as steep as it has previously been.
That outlook from the International Energy Agency’s (IEA) latest coal market analysis and forecast does, however, depend on the level of pressure exerted on fossil fuels from climate policies and natural gas prices.
Demand growth is expected to be 5.52bn tonnes of coal equivalent this year, rising to 5.65bn tonnes in 2024.
“In 2019, global coal power generation will experience the biggest drop ever and coal power generation in India will probably decline for the first time in 45 years,” said Keisuke Sadamori, the IEA’s director of energy markets and security.
Coal-fired electricity generation is set to drop more than 250 terawatt hours (TWh), or more than 2.5%, led by double-digit declines in the US and Europe, according to the IEA’s Coal 2019.
“But this is not the end of coal, since demand continues to expand in Asia,” Mr Sadamori added. “The region’s share of global coal power generation has climbed from just over 20% in 1990 to almost 80% in 2019, meaning coal’s fate is increasingly tied to decisions made in Asian capitals.”
Indeed, the global coal outlook depends largely on China, where half of the world’s coal is produced and consumed.
Production growth
Looking back, the IEA notes that coal production grew by 3.3% in 2018, mainly driven by demand growth. Four of the world’s six largest coal‑producing countries increased their output, with three of them – India, Indonesia and Russian – producing their largest outputs ever. In fact, Indonesia and Russia recorded all-time high coal exports. The international coal trade grew by 4% in 2018, surpassing 1.4bn tonnes.
In region specific forecasts, the IEA expects coal demand in Southeast Asia to grow by more than 5% per year through 2024, led by Indonesia and Vietnam. “The region’s strong economic growth will drive electricity and industrial consumption, which will both be fuelled in part by coal,” says the IEA. “South Asian countries are also in need of more electricity supply for the growing populations, and they are often turning to coal to provide it.”
For example, Pakistan has recently commissioned over 4 GW of new coal power plants, with similar capacity under construction. Bangladesh is ready to commission the first unit of the 10 GW it has in the pipeline. However it is India that shows the most coal growth promise with demand there expected to grow by more than that of any other country, in absolute terms, over the forecast period, increasing by 4.6% per year through 2024.
In China, the world’s biggest coal producer and consumer, consumption is expected to plateau over the forecast period, around 2022, and then start a slow decline. “In our forecast, the decline of coal use in the residential and small industrial sectors continues because of air pollution concerns,” says the IEA. “Coal use in heavy industry also drops, driven by structural changes in the economy as well as macroeconomic conditions in the coming years.”
Gas nemesis
Of the less well performing countries, cheap natural gas has become coal’s nemesis in the European Union. Couple this with heavy pressure from policies to reduce air pollution from coal plants and increase carbon prices and plans to phase out coal power generation and coal’s days are numbered.
Gas is also the counter to coal in the US, with the shale gas boom proving to be “coal’s undoing”, according to the IEA. “Cheap and abundant natural gas combined with the climate policies of many states will continue to squeeze coal out of the electricity market.”
In the forecast, US coal demand declines by almost 4% per year through to 2024. Coal’s share in electricity supply, which had been as high as 50% in 2007, declines from 28% in 2018 to 21% in 2024.
South Africa, meanwhile, is described as “at a crossroads”. While the government’s Integrated Resource Plan has brought clarity for the future of the country’s energy sector, other uncertainties still hang over the coal industry. “These include the financial difficulties of electricity utility Eskom, changes in coal mine ownership, and the shift away from Mpumalanga, the country’s coal-mining heartland, to other areas.”
Investment concerns
The IEA also notes a shift in the investment climate with investors and companies demonstrating a strong commitment to action on climate change. Combine this with public opposition to fossil fuels, competition from natural gas and renewables, and carbon pricing and policies to phase out coal in power generation and the role of coal power generation in advanced economies is expected to shrink.
“These shifts have raised expectations once again that demand for coal is about to collapse,” said the IEA. But it adds that “expectations of an imminent coal collapse have come and gone before”. It points to the three-year decline in global coal consumption 1997-99 after the adoption of the Kyoto Protocol in 1997. The imminent end of coal was prophesised. “But the decline turned out to be the result of some specific circumstances such as the Asian financial crisis and did not last,” notes the IEA. Indeed, between 2000 and 2013, global coal demand soared 75%, more than it had done over the entirety of the previous nine decades.
While the Agency does concede that a “similar upsurge” is not expected in today’s context, it adds that a sudden plunge is also not on the cards.
Source: Baltic Exchange
