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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Chinese Coal Demand Slows Putting Coal Producers at Risk

Chinese Coal Demand Slows Putting Coal Producers at Risk

China’s determined efforts to reduce coal consumption will slow the growth of global coal demand over the next five years, according to a new report from the International Energy Agency. China will still account for 60% of the global increase in coal consumption through 2018, but according to the IEA, “government efforts to encourage energy efficiency and diversify electricity generation will dent that growth, slowing the global increase in demand.”

The IEA downgraded its projection for Chinese coal demand, which it estimates will rise 2.3% per year over the next five years, down from the 2.6% annual growth rate the IEA predicted in its 2012 report.

Related article: Another Strong Datapoint For Coal

China consumes about as much coal as the rest of the world combined. As the world’s largest coal consumer (and producer), Chinese demand has a major influence over global coal trade. A slowdown in Chinese consumption means that many coal producers around the world will feel the effects. A new report from the University of Oxford found that many coal mining operations in Australia may become unprofitable due to lower demand in China. As the report concludes, “[p]rices could also drop to the point where it is in the interests of miners to cease production, resulting in stranded mines and dependent infrastructure such as railways.” Greenfield projects are especially vulnerable.

Australian assets are not the only ones that could become “stranded.” The U.S. coal industry is also banking on the insatiable Chinese appetite for coal. As American coal consumption declines – due to the ongoing switch to natural gas and renewables – more coal is being exported. Most U.S. coal exports travel through existing ports on the East Coast or the Gulf of Mexico, such as Baltimore, Norfolk, Charleston, or New Orleans. These facilities can ramp up exports when demand increases. For example, the port of New Orleans saw a three-fold increase in coal exports to Germany alone from 2008 to 2012, jumping from 466,000 short tons to 1.5 million.  

US Coal Exports and Imports

Related article: Time Running Out for Midwest Coal

But, there are new export facilities on the West Coast in the planning stages that could ship coal from the Powder River Basin in Wyoming and Montana to China. Just as Aussie greenfield projects could become unprofitable if China’s coal demand slows, new U.S. facilities are also vulnerable to shifts in Chinese consumption habits. Just a few years ago, there were six coal export terminals slated for development in Washington and Oregon. Three have already been scrapped because of poor economics. For example, the Port of Coos Bay in Oregon would only work with expensive investments to upgrade rail infrastructure. That project was cancelled in April 2013. The remaining projects will only be viable if Chinese coal demand remains strong over the long-term – which is looking increasingly uncertain.

The latest IEA report downgrading Chinese coal demand reflects the stronger actions taken by the Chinese government to curb coal use. With Shanghai and Beijing suffocating in smog, the problem has become more urgent than ever. China already has several cap-and-trade pilot programs up and running, and is considering a carbon tax. Through the first ten months of 2013, China added 7.9 gigawatts of wind and 3.6 GW of solar. Renewables have made up more than 50% of new capacity this year. The IEA stopped short of predicting peak coal demand in China over the next five years, but the mere fact that it needed to point that out suggests that the peak may soon come into focus.

By. Nick Cunningham




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