Coal news and updates

Global Demand for Coal Shrinks

A slowing of the Chinese economy and the diversification of its power sector, combined with a worldwide trend toward policies that favor renewable energy and the retirement of older, less-efficient coal-fired facilities, trumped growth in India and the ASEAN (Association of Southeast Asian Nations) countries, resulting in a decline in coal consumption in 2014, which has continued this year, according to a report released by the International Energy Agency (IEA) on Dec. 18.

Coal demand had been increasing since the 1990s, as China—where half of global coal is used—experienced an annual gross domestic product growth rate of more than 10% from 1991 to 2015. The expansion is historic, considering the U.S. averaged less than 2.5% growth during the same period, with its highest total (4.7% in 1999) less than half China’s average growth. China added more than 55 GW of hydro, wind, solar, and nuclear capacity in 2014 and unusually high rainfall allowed hydro to generate about 100 TWh more power than it typically produces each year, which all combined to reduce the demand for coal.

Organisation for Economic Co-operation and Development (OECD) countries saw a reduction in coal consumption due to the combination of aging coal capacity, weak power demand, and strong renewable and climate policies, according to the report. The OECD used 47 million metric tons (mt) less in 2014, but that was more than made up for by growth in India and the ASEAN countries, which increased their burn by 112 million mt. Even with continued growth in these nations however, global coal consumption is likely to be lower in 2015.

The IEA reduced its 2020 global demand forecast by 500 million mt, including a 75-million-mt reduction in the U.S. The report notes, “The decline in U.S. coal demand is inevitable,” citing abundant shale gas, increasing renewable generation, and Environmental Protection Agency rules as the reason.

The report says that coal prices are at their lowest levels since the financial crisis, and it suggests that they may never recover. Although all commodities are subject to boom and bust cycles, the IEA believes several factors could make this more than simply a dip in the market. The factors include:

    Oversupply in China at the same time that main exporters have expanded capacities
    The increase in natural gas production in the U.S.
    Major cost reductions in the industry, sometimes by gaining scale and increasing production
    Take-or-pay infrastructure contracts employed by major exporters
    Currency depreciation among exporting countries
    Low oil prices
    The Chinese slowdown
    The dramatic decrease in the cost of solar and wind generation
    Anticipation of stronger climate policies

Macquarie Research agrees with the IEA analysis. In a Dec. 14 commodities report, the group, which provides specialized metals and minerals research and market intelligence, said, “Thermal coal is our least preferred commodity.” It sees prices continuing to decrease through 2017.

According to Macquarie’s report, “Being a seller of thermal coal today is probably how it felt to be a seller of wood as coal itself was taking over as the dominant energy source. You know that global consumption has more-or-less peaked; you just aren’t sure how quick the demise will be.”

In addition to several of the same factors cited by the IEA, Macquarie suggested that underperformance of the global industrial sector, a reduction in the power intensity needed for economic growth, and increasing power plant efficiency are other key drivers reducing coal demand.

When you throw in all of the pledges agreed to by the 195 countries participating in the Paris Climate Conference (COP21), there is a stiff headwind blowing in the face of the coal industry.

source: http://www.powermag.com