Organisation for Economic Co-operation and Development
TORONTO (miningweekly.com) – Tougher Chinese policies aimed at reducing the country’s dependency on coal would help restrain global coal demand growth over the next five years, the International Energy Agency (IEA) found in its yearly ‘Medium-Term Coal Market Report’ released in Paris on Monday.
Despite the slightly slower pace of growth, coal would meet more of the increase in global primary energy than oil or gas – continuing a trend that has been in place for more than a decade.
“Like it or not, coal is here to stay for a long time to come. Coal is abundant and geopolitically secure, and coal-fired plants are easily integrated into existing power systems. With advantages like these, it is easy to see why coal demand continues to grow.
“But it is equally important to emphasise that coal in its current form is simply unsustainable,” IEA executive director Maria van der Hoeven said at the launch of the report.
The IEA found that coal was the fastest growing fossil fuel in absolute and relative terms in 2012. About 29% of global primary energy consumption were derived from coal and coal strengthened its position as the second-largest primary energy source, behind oil.
Global coal consumption grew by 2.3%, from 7.53-billion tonnes in 2011, to an estimated 7.7-billion tonnes in 2012. Despite coal demand increasing by 170-million tonnes, demand growth was the third lowest on record over the last decade.
The report found that China was the growth engine of global coal demand. In 2012, China posted the second-lowest demand growth (4.7%) since 2001. Nevertheless, coal consumption increased by 165-million tonnes, to an estimated 3.68-billion.
Measured in energy units, China alone accounted for more than 50% of global coal demand in 2012. Total 2012 Chinese coal consumption was roughly equal to total coal demand of the US since 2009, Japan since 1993 and Germany since 1990. Put differently, China consumed over four times more thermal coal and almost ten times more metallurgical coal (met coal), than the world’s two largest consumers, the US (thermal coal) and Russia (met coal).
In 2012, coal demand in the US decreased by 98-million tonnes – the second-strongest decline ever in the country. Due to the mild winter, low gas prices and plant retirements, coal-fired generation decreased by 235 TWh in 2012, while coal demand plummeted to an estimated 822-million tonnes.
Coal consumption increased in Organisation for Economic Co-operation and Development (OECD) Europe (+17-million tonnes) and OECD Asia Oceania countries (+12-million tonnes) in 2012. Demand was the highest ever in OECD Asia Oceania (467-million tonnes) and the highest since 2008 in OECD Europe (810-million tonnes).
In 2012, global coal supply reached an estimated 7.83-million. Compared with 2011, supply increased by 223-million tonnes, an amount greater than the yearly consumption of Japan. More supply came mainly from China (+130-million) and Indonesia (+82-million), whereas production declined strongly (-71-million) in the US.
Coal demand would grow at an average rate of 2.3% a year through 2018, compared with the 2012 report’s forecast of 2.6% for the five years through to 2017 and the actual growth rate of 3.4% a year between 2007 and 2012.
Chinese policies were already affecting the global coal market. While China would account for nearly 60% of new global demand over the next five years, government efforts to encourage energy efficiency and diversify electricity generation would dent that growth, slowing the global increase in demand.
NO PEAK DEMAND YET
Despite its moderated demand forecast, the report did not expect peak coal in China within the next five years, and the nation’s consumption and production would remain comparable to that of the rest of the world combined.
Further, the report noted that China had approved a number of coal conversion projects to produce liquid fuels and synthetic natural gas – developments that could significantly reduce the country’s demand for other fossil fuels.
“During the next five years, coal gasification will contribute more to China’s gas supply than shale gas. While there are many uncertainties about this technology, the potential scale of projects in China involving coal to produce synthetic natural gas and synthetic liquids is enormous.
“If this were to become reality, it would mark not just an important development in coal markets but would also imply revisions to gas and oil forecasts,” IEA director of energy markets and security Keisuke Sadamori said.
For the rest of Asia, coal demand was expected to stay buoyant over the next five years. India and countries in Southeast Asia were increasing consumption, and India would rival China as the top importer in the next five years, the report says.
Despite demand growth being concentrated in non--Organisation for Economic Co-operation and Development (OECD) countries, coal would not decline in the OECD, but would rather remain flat during the outlook period.
During the forecast period, coal use would on average rise by 1.3% a year in Japan and 3% a year in Korea, both OECD members, but strength in OECD Asia would be offset by sluggishness elsewhere in the OECD.
The European coal fever prompted by the price differential between coal and gas – as well as low carbon dioxide prices – would prove temporary, and European demand would fall more than 6% through 2018.
In the US, environmental regulations would hamper construction of new coal-fired plants and bring the closure of some older ones, while increasing shale gas production would continue to encourage coal-to-gas switching.
Thanks to its geographic location, South Africa could competitively export coal to both the Atlantic and Pacific basins. Almost all hard coal exported from South Africa was thermal coal, most of which was exported through the Richards Bay Coal Terminal (RBCT), with some minor volumes shipped through Durban or Maputo (Mozambique).
Despite the RBCT having a yearly capacity of 91-million tonnes a year, South African exports stagnated in the last decade at about 70-million tonnes, as bottlenecks in the rail infrastructure constrained exports. Nonetheless, in 2012 South Africa increased exports to 74-million tonnes (+6-million tonnes), enabling the country to retain its status as the fifth-largest thermal coal exporter.
Local railway operator Transnet Freight Rail, which reduced load and track maintenance times, helped this performance. While South Africa was still a rather low-cost coal producer, it had suffered significant cost increases in recent years.
The report found that the structure of South African exports had completely changed within the last decade.
In 2003, 80% of South African coal was destined for Europe, compared with 15% in 2012. One reason was an oversupply of coal from the US, Colombia and Russia, leading to comparatively low prices in Europe. Another reason was surging demand (and therefore higher prices) in Asia.
Further, many Asian countries, such as China and India, required lower coal qualities than the Atlantic market countries, and the quality of the South African coal had decreased. Since 2006, South African exports to Asia had increased from 3-million tonnes to 48-million tonnes. India was the most significant importer at 23-million tonnes.
In 2012, Canada exported 31-million tonnes (+three-million tonnes) of met coal, making it the world’s third-largest exporter of met coal, and four-million tonnes of steam coal.
Exports were boosted by China (ten-million tonnes), with an increase of five-million tonnes, Japan (nine-million tonnes) and Korea (six-million tonnes).
Canadian met coal is mainly mined in the country’s western provinces of British Colombia and Alberta and shipped to Asia through important west coast coal terminals such as Westshore, Ridley and Neptune Bulk.
Replaced by Indonesia as the largest hard coal exporter on a tonnage basis in 2011, Australia was once again surpassed by Indonesia in 2012, this time on an energy content basis. However, it was still the world’s largest coal exporter in terms of revenue, with 4.5% average growth a year since 2007.
The commissioning of new mine, rail and port capacity in Queensland and New South Wales, combined with surging import demand in Asia, had driven this trend.
Total hard coal exports were an estimated 302-million tonnes in 2012 (+17-million tonnes over 2011), mainly driven by thermal coal exports (+15-million tonnes). At 142-million tonnes in 2012 (+2-million tonnes over 2011), met coal exports remained below their record level of 157-million tonnes in 2010.
Nevertheless, Australia remained the world’s largest met coal exporter by far.
Incremental exports were almost entirely destined for China, which accounted for 20% of Australian exports in 2012; they were also fostered by increasing imports from Japan.
In 2012, Australia exported 87% of total Australian hard coal production, generating revenues of $42-billion. The lower prices for met coal resulted in decreased revenues.
Despite thermal coal exports rising by more than 10%, thermal coal revenues grew less than 8%, which also indicated lower prices.