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Global coal demand growth will slow over five years

Growth in global coal demand will slow over the next five years as consumption in China, the US and Europe are expected to ease, according to the International Energy Agency (IEA)

In its Medium-Term Coal Market Report, the IEA said that in the period to 2018, global coal demand will grow by 2.3% per year,  reaching almost 9 billion tonnes. This is down from its previous forecast annual growth rate of 2.6% over the same period.

Between 2007 and 2012, global coal demand grew by an average of 3.4% per year, the IEA said. However in 2012 the growth in global coal consumption dropped to 2.3% year-on-year, reaching 7.7bn tonnes.

Despite this year-on-year rise of 170 million tonnes in 2012, this was the third lowest annual growth rate in over 10 years.

China

While China will account for almost 60% of the growth in coal demand – it is expected to need around 476m tonnes of the fuel in 2018 - the rate of this growth will be curbed by environmental policies, attempts to diversify energy supplies and weaker economic growth, the IEA said.

Last year China’s coal demand grew by 4.7%, to around 165m tonnes. This is due to flat power demand because increased hydro production and lower-than-expected economic growth.

Chinese government efforts to encourage energy efficiency and diversify its electricity generation sources will stall coal demand-growth, slowing the global increase in demand.

China has also approved a number of coal conversion projects to produce liquid fuels and synthetic natural gas. These could cut China’s demand for other fossil fuels, the IEA said. “During the next five years, coal gasification will contribute more to China’s gas supply than shale gas,” Keisuke Sadamori, the IEA’s director of energy markets and security, said. “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.

Sluggish OECD growth

In the period to 2017, coal demand growth will remain concentrated in non-OECD countries as OECD demand will remain flat.

A mild winter, cheap domestic gas supplies and the retirement of coal power plants has caused the second-steepest fall in US coal consumption in 50 years, the IEA said. Low US gas prices saw coal demand drop by 98m tonnes in 2012, an 11% year-on-year declines. The IEA expects US coal consumption to total 606 million tonnes by 2018, down from 718m tonnes in 2010.

While the increase in US shale gas production will continue to push coal prices down, environmental emissions regulation will cause the closure of coal capacity and carbon policy will deter investment in new coal plants, the IEA said.

Thermal and metallurgical (met) coal prices fell to three-year lows in 2013 as oversupplies and lower-than-expected demand have put prices under pressure. In July 2013, import prices for met coal fell to $73 per tonne (/t) in Europe and $85/t in Asia. This is down from $123/t and $125/t, respectively.

Despite this, major coal exporters such as Indonesia, Australia, Russia, the US, Colombia and South Africa, all have expansion plans. However, the IEA said many new coal projects or project ramp-ups will be delayed, postponed or simply abandoned. While low coal prices have encouraged consumption at the expense of gas, they deter investment in new project ramp ups.

The agency added it believed Europe’s increased coal use, which started with the 2008 economic crisis, will be short-lived. Sluggish economic growth, environmental regulations and commitments to renewable energy and greater energy efficiency will shrink European coal demand by more than 6% by 2018, down to 348m tonnes.

Non-OECD Asia

Coal demand throughout Asia is expected to remain strong over the next five years as non-OECD coal imports will nearly match total global imports by 2018. Non-OECD countries will consume an additional 817m tonnes of coal by 2018, the IEA said, adding about 500m tonnes of that will be used in power generation.

India’s coal demand will grow by about 4.9% over the next five years to 164m tonnes. The previous forecast of 6.3% growth has been revised because of lower economic growth projections and issues with coal project development.

However, coal demand in southeast Asia will be sustained by soaring population growth and the availability of the fuel in China, India, Indonesia, Vietnam. Coal use in Japan and Korea will also increase by 1.3% and 3% per year, respectively.

Despite the slowdown in Chinese demand, it remains “the centre of the coal world”, the IEA said, as the country accounted for more than half of total global consumption in 2012.

China imported 301m tonnes of coal last year, as well as shipping more than 600m tonnes of domestic coal from northern ports to the south of the country. “China is receiving roughly as much seaborne coal as the rest of the world combined. This makes arbitrage between domestic and imported coal in China’ southern coast pivotal to coal market developments,” the agency said.

China is the largest importer and producer of coal in the world. In 2012, China produced 549m tonnes of coal, around 45% of the global total. “Like it or not, coal is here to stay for a long time to come,” IEA executive director Maria van der Hoeven said. “Coal is abundant and geopolitically secure, and coal-fired plants are easily integrated into existing power systems. But it is equally important to emphasise that coal in its current form is simply unsustainable.”

Main points from the IEA’s Medium-Term Coal Market Report:

- Global coal demand will increase by 2.3% per year until 2018;.

- China will account for 60% of this growth - 476m tonnes - despite efforts to diversify its energy sources;

- India will account for 164m tonnes and other  Asian non-OECD  countries will account for 116m tonnes; 

- European coal consumption will fall by 23m tonnes in 2018 to 348m tonnes because of sluggish economic growth and increased renewable power generation;

- US coal demand will remain sluggish, with 2018 levels remaining similar to those recorded in 2012, because shale gas production will increase price competition and environmental regulations will close coal-fired generation capacity;

- In 2012, global coal demand increased by 2.3% (170m tonnes)., with demand increasing in all major regions, except for the US;

- China’s coal consumption increased by 165m tonnes, and the country accounted for more than 50% of global coal demand in 2012;

- China imported 301m tonnes of coal in 2012, the highest amount of coal ever imported by  any  country  within  a  single  year;

- Taking into account domestic coal shipments along the Chinese coast, China received as much seaborne coal as the rest of the world combined in 2012;

- Capacity ramp-ups in Indonesia and Australia, coupled with lower demand, caused thermal and metallurgical coal prices to fall to three-year lows in 2013;

- By 2018, 83% of seaborne-traded thermal coal and 66% of met coal will go to Asia;

- The bulk of seaborne exports will come from Australia (79m tonnes) and Indonesia (72m tonnes); and

- Despite low coal prices between 120m and 480m tonnes per year of  coal export  mine  expansion  capacity  are expected to come online.

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