• 40 mins Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 1 hour VW Fails To Secure Critical Commodity For EVs
  • 2 hours Enbridge Pipeline Expansion Finally Approved
  • 3 hours Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 4 hours OPEC Oil Deal Compliance Falls To 86%
  • 20 hours U.S. Oil Production To Increase in November As Rig Count Falls
  • 22 hours Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 24 hours Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 1 day EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 1 day Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 1 day Aramco Says No Plans To Shelve IPO
  • 4 days Trump Passes Iran Nuclear Deal Back to Congress
  • 4 days Texas Shutters More Coal-Fired Plants
  • 4 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 4 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 4 days Chevron Quits Australian Deepwater Oil Exploration
  • 4 days Europe Braces For End Of Iran Nuclear Deal
  • 5 days Renewable Energy Startup Powering Native American Protest Camp
  • 5 days Husky Energy Set To Restart Pipeline
  • 5 days Russia, Morocco Sign String Of Energy And Military Deals
  • 5 days Norway Looks To Cut Some Of Its Generous Tax Breaks For EVs
  • 5 days China Set To Continue Crude Oil Buying Spree, IEA Says
  • 5 days India Needs Help To Boost Oil Production
  • 5 days Shell Buys One Of Europe’s Largest EV Charging Networks
  • 5 days Oil Throwback: BP Is Bringing Back The Amoco Brand
  • 5 days Libyan Oil Output Covers 25% Of 2017 Budget Needs
  • 5 days District Judge Rules Dakota Access Can Continue Operating
  • 6 days Surprise Oil Inventory Build Shocks Markets
  • 6 days France’s Biggest Listed Bank To Stop Funding Shale, Oil Sands Projects
  • 6 days Syria’s Kurds Aim To Control Oil-Rich Areas
  • 6 days Chinese Teapots Create $5B JV To Compete With State Firms
  • 6 days Oil M&A Deals Set To Rise
  • 6 days South Sudan Tightens Oil Industry Security
  • 7 days Over 1 Million Bpd Remain Offline In Gulf Of Mexico
  • 7 days Turkmenistan To Spend $93-Billion On Oil And Gas Sector
  • 7 days Indian Hydrocarbon Projects Get $300 Billion Boost Over 10 Years
  • 7 days Record U.S. Crude Exports Squeeze North Sea Oil
  • 7 days Iraq Aims To Reopen Kirkuk-Turkey Oil Pipeline Bypassing Kurdistan
  • 7 days Supply Crunch To Lead To Oil Price Spike By 2020s, Expert Says
  • 7 days Saudi Arabia Ups November Oil Exports To 7-Million Bpd
Global Energy Advisory 13th October 2017

Global Energy Advisory 13th October 2017

Tensions between Iran and the…

The Safest Way To Bet On The Bitcoin Boom

The Safest Way To Bet On The Bitcoin Boom

Often described as the backbone…

Global Risk Insights

Global Risk Insights

GlobalRiskInsights.com provides the web’s best political risk analysis for businesses and investors. Our contributors are some of the brightest minds in economics, politics, finance, and…

More Info

Could China And India Save The Beleaguered Coal Markets?

coal mining

Tectonic shifts in the global coal market are underway, posing a series of questions for traditional coal supply markets.

Coal has historically played and continues to play a central role in the industrialization and development of nations. A convergence of factors, including China’s spectacular rise, has however had a significant destabilizing effect on the global coal market.

New era for coal

For much of the recent history, global coal export demand was driven by European and Japanese post-war reconstruction and the emergence of the Tiger economies of South Korea and Taiwan. China and, until recently, India, have been late but significant players in the global coal market.

(Click to enlarge)

Source: Knoema, World Bank

Accounting for 75 percent of China’s and 73 percent of India’s primary energy mix , recent EIA statistics (2014) reveal that China alone consumes and produces more coal than half of the world’s total coal production of 7 876 Mt (metric tons) – with new estimates 14 percent higher than previously reported. India, too, has become a major producer of coal, increasing output from 116 Mt in 1980 to a current level of 600Mt – with an ambitious target of 1.5 billion Mt set for 2020.

Related: Why Oil Prices Will Likely Drop Below $40 Soon

What distinguishes both China and India from traditional coal markets in Europe and Asia, however, are their relatively high degree of historical and continued coal self-sufficiency. Unlike South Korea at 98 percent or Japan at 100 percent dependent on imported coal, China and India rely on imports for a total of 7 percent and 11 percent respectively.

Coal’s continued relevance

Often the debate on coal’s future centers on pollution, climate change, and the increasingly low-cost attractiveness of renewable energy production. Though these arguments are valid, over 473GW of coal power capacity was brought online in the period 2010-15, led by China and India. A further 338GW is currently under construction, rendering coal an indissoluble cog in global energy production in the medium to long-term.

China alone accounted for 297GW of coal power capacity in the period. By way of comparison, the entire U.S. coal fleet is 315GW, with China annually adding on average roughly half (49GW) of the UK’s total installed capacity in coal power alone.

This also does not take into account the role of coal as a fuel source used in industrial furnaces for smelting and baking processes, or as an additive in chemical derivatives and industrial applications.

Ironing out inefficiencies

In China, pollution, climate change, and overcapacity concerns have, however, provided impetus for the country to review the role of coal in its energy mix. With its total installed electricity capacity increasing on average by 10 percent in the period 2007-2013 to 1257.68GW, China has halted the construction of over 200 approved coal fired power stations until 2018.

Halting the approved build program with combined electricity output of 105GW – equivalent to 73 percent of Africa’s total installed capacity – must be seen in light of arguably the most significant growth phase in modern industrial history, with total installed electrical capacity more than tripling since 2000 (298GW). The peak of this growth phase (2007-2011) saw China building the equivalent of two 500MW coal power stations per week.

Related: Germany About To Make Big Changes To Its Renewables Policy

The hiatus in new plant construction comes on the heels of significant losses in plant utilization rates, plummeting from 60 percent in 2011 to 49 percent in 2014, expected to fall to 46 percent in 2016. Coal power plants with less than 100MW output have also been earmarked for closure, with 60GW of coal power announced to be removed from the grid in the 2016-2020 period.

In a similar vein, over 4300 small, inefficient coal-mining operations have been earmarked for closure in addition to the 7250 that have been closed in the last 5 years, slashing a further 560 Mt. In total ,1.3 million coal and 500 000 steel jobs will be lost as part of a broader economic restructuring. India too has been struggling with inefficiencies following a remarkable growth phase that saw its total installed electricity capacity practically double in the period 2006-2014, from 124GW to 245GW.

Along with China, India’s coal-fired power stations are among the most inefficient globally. Due to bottlenecks in the supply of coal to power stations by rail, with over 50Mt of coal stranded at mines in 2014, modernization of existing coal power plants has been identified as essential to keep pace with an electricity demand of 4.9 percent per year.

Further corrections to the global coal market are expected in the short-term as China and India grapple with weighty inefficiencies at mine, power plant level and factory level.

Past the peak

Significant cutbacks on imports are expected to increase, with annual Chinese demand down 35 percent in 2015, registering a total drop in coal demand of over 5 percent in the 2014-15 period and set to continue into 2016. With coal imports down 34 percent annually, India’s Prime Minister Modi recently declared war on coal imports, stating that no imports will be allowed past 2019.

(Click to enlarge)

Source: eia

This trend towards energy autonomy can be seen in part as a drive to reduce risk of future shocks due to price volatility as witnessed in the previous decade with coal reaching an all-time high of over $160 in 2008.

(Click to enlarge)

Source: Index Mundi

Counting the cost

The key consideration for the future of coal rests on balancing supply with global demand. As developed economies wean themselves from coal, traditional export markets are on the decline. Recent reductions in demand from China and India, with stockpiles rising at the world leading coal terminals, have resulted in coal exporters scrambling to find customers.

Related: Beleaguered Chesapeake to Sell Off More Assets to Reduce $9B Debt

High-cost players are being eliminated in emerging and developed markets. One such example is the recent liquidation of Peabody Energy with a market cap of $20 billion in 2011, reduced to $38 million in early 2016. Big coal has seen a steady decline in the US, with the Obama presidency’s effort to shutter the industry hastening the end. A shale gas surge and the significant drop in crude oil prices have also had a significant deleterious effect on coal’s place in the US and world’s energy mix, with 2015 declared the worst year for US coal.

Tough environmental regulations and sanctions in developed economies, a competitive renewable energy sector competing directly with coal, and the recent signing of the Paris climate accord have all diminished coal’s place in many developed economies. December 2015 saw the closure of the UK’s last deep coal mine, Kellingley colliery. Most recently, eastern Europe’s largest private coal miner, Czech-based New World Resources, scrambled to secure a bailout because of the need to support 13 000 jobs.

Shifting centers of production

A re-balancing of Chinese and Indian coal markets in the short to medium-term could send significant shockwaves through the global coal market. Several uncertainties could prove troublesome for global coal, including the extent of the glut in Chinese and Indian domestic coal markets. Addressing the significant inefficiencies in existing electricity-generation infrastructure could also flatten demand for coal further. Possibly more troublesome, however, is the prospect of China and India becoming net exporters of coal.

For the two largest exporters of coal, Indonesia (16 percent of global coal exports) and Australia (13 percent), with export markets accounting for 80 percent and 72 percent of total production respectively, the risks are high. With coal prices down 60-90 percent, the leading investor in Indonesian coal, BHP Billiton, has recently in a shock announcement signaled its intention to exit from Indonesian coal – a key supplier to China.

Source: EIA

For the remaining top exporters including Russia, South Africa, Colombia and a beleaguered U.S., the impact could be equally negative, resulting in mine closures, retrenchments, and the loss of a key foreign exchange earner. Much will depend on the reliability of the short-term coal fundamentals emerging from China and India.

by John Filitz via Globalriskinsights.com

More Top Reads From Oilprice.com:

Join the discussion | Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News