While some are calling the current depressed state of the coal market “the end of coal”, a new study has revealed it is actually undergoing a renaissance.
In fact, global coal consumption has risen dramatically in the past decade according to the paper, published in the Proceedings of the National Academy of Sciences of the United States.
The amount of coal consumed by developing and emerging countries has risen from one gigatonne in 1990 to 3.7 gigatonnes in 2011.
Mercator Research Institute on Global Commons and Climate Change researchers Jan Steckel, Ottmar Edenhofer, and Michael Jakob chose to call it a renaissance, because not only is coal’s share of the global energy mix growing, but its past role in fuelling the growth of industry in the developed world is being played out again in countries like Vietnam, Indonesia, and the Philippines..
In countries like Australia investment in coal-exporting capacity at ports has made coal accessible for countries that do not have their own reserves.
China and India are often singled out as big consumers of coal, and emitters of CO2, but Mr Steckel said the investment in new coal assets like power stations was occurring among a much wider set of countries.
In addition to South East Asia, the same phenomenon is occurring in parts of Africa, where economic growth is high.
Price is main driver, as coal remains relatively cheaper than nuclear power and renewables.
“As fast-growing, developing countries are finding they need to quickly meet rising energy demands, they look to the cheapest option and that is coal,” said Mr Steckel.
“But there’s a second effect at play; coal markets are increasingly integrated, so this effect we could see is not only limited to countries that have their own coal reserves, but is it also recognisable in countries that don’t have any coal.”
Climate warning
The widespread construction of coal fired power plants is a worrying trend for the paper’s authors, because it is locking developing countries into a long-run relationship with coal.
With coal fired power plants having operating lives of three to four decades, Mr Steckel said the trend has concerning implications for emissions.
“This will make climate change mitigation over the long term difficult,” he said.
“When we see that emissions globally need to peak soon if we want to achieve ambitious emissions reduction targets.”
Mr Steckel said the best policy tools are ones that change the price of coal.
“In my opinion, I think it shows the need for things like carbon taxes in poorer countries,” he said.
“Of course this is a difficult thing to implement and a difficult thing to ask those countries because it comes with all kind of tradeoffs.
“But one should think of using funds from the International Clean Climate Fund to get the price signals right, because what our study shows is that as long as coal is relatively cheaper than other energy sources, then I think we will see a continuation of this trend for quite some time.”
Demand and supply
The data set for the study runs to 2011, and there has been a reduction in coal demand since that date, according to an industry analyst.
Throughout 2014 and into 2015, a raft of research notes and forecasts have painted a miserable picture for coal miners for the near future.
A number of mines in Australia have closed down or scaled back over that time period, as the coal price tanked.
But that hasn’t stopped new ones opening either.
Wood Mackenzie Asia Pacific principal coal analyst, Rory Simington, said the current malaise in the coal market is caused by the supply side, not demand.
“While the coal price was high, there was a lot of investment in capacity, and some of that is still coming on line now,” he said.
“At the same time there has been a slowdown in demand, but there’s also been an overhang of excess capacity that is leading to the weakness.
“That’s overcapacity in the seaborne market from exporters like Australia and Indonesia, but importantly domestically in China; there is a lot of excess production in China.”
Australian producers are doing relatively better than their competitors in the USA and Indonesia however and the past couple of years have seen Australia’s market share rising at their expense.
“Despite the fact that Chinese demand has decreased, Australia’s share of Chinese imports has actually increased,” Mr Simington explained.
“So Australia’s exports are still growing but they are mainly doing that by taking market share away from other exporters.”
Australian producers have managed to grow exports during a period of subdued demand because of the high-quality coal it exports and the ability of miners to keep costs low, which has been made easier with the devaluation of the Australian dollar.
Link: http://www.abc.net.au/news/2015-07-13/world-witnessing-coal-renaissance/6607432