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Investors Are Turning Their Back On Coal

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Gaurav Agnihotri

Gaurav Agnihotri

Gaurav Agnihotri, a Mechanical engineer and an MBA -Marketing from ICFAI (Institute of Chartered Financial Accountants), Mumbai, is a result oriented and a business focused…

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Coal And NatGas Fight It Out For Market Share In Asia

Natural gas is indeed having a tough time. In Asia, the outlook for natural gas does not look good, as Southeast Asia, and India in particular, are now increasing their coal consumption for power generation, which could limit the growth in demand for gas. India has historically relied on coal as its primary energy generation source. Being the cheapest fuel available, consumption of coal is set to increase in India, where it is currently satisfying close to 45 percent of the nation’s energy demands.

Although demand for coal has declined in China (thanks to its economic slowdown and increased efforts to reduce carbon emissions), its natural gas demand isn’t growing either, contrary to previous expectations. Does this mean that demand for natural gas will largely remain subdued in the years ahead?

India and Southeast Asia are major drivers of coal demand

Related:  Why French Military Action In Syria Doesn’t Affect Oil Prices

India, a country of more than a 1.2 billion people still has close to 400 million citizens who are not connected to the power grid. This means that India requires massive amounts of ‘new energy’ for its future power generation. Under India’s Prime Minister Narendra Modi, the Government of India initiated a ‘Make in India’ campaign which aimed to tap new foreign investments. With focus on foreign direct investments (FDI) , the Indian Power Minister Piyush Goyal said in a World Economic Forum Conference that India requires around $250 billion worth of investments to solve its energy crunch, and coal would play an “essential role’ in solving this massive issue. He also said that the country needs to raise its coal production levels to achieve the ultimate target of providing uninterrupted electricity to all its citizens.

India already relies on coal to satisfy close to 3/5th of its total energy requirements and the nation’s energy consumption is set to double by 2019. Although India’s biggest coal producing company Coal India Limited recorded its fastest production growth in the last two decades in 2015, the country is still poised to increase its imports of coal.

Related: OPEC’s Bad Bet By The Numbers

Demand for imported coal from some India based power developers in FY16

Image Source: eximbits.com

As coal is much cheaper than natural gas and other fossil fuels, its consumption (coupled with strong internal demand) is indeed set to increase in India in the next few years. A similar trend is taking place across Southeast Asia. The IEA even predicts that by year 2040, almost 40 percent of the total 400 GW of new generation capacity in Southeast Asia will come from coal.

While the cost of coal in the international market has declined, the cost of running a gas plant has nearly doubled. There is little surprise as to why IEA predicts the increase of coal usage for power generation in Southeast Asia from the current 32 percent to almost 50 percent and the decline of natural gas from current 40 percent to around 26 percent by the year 2040. Almost 500 coal-fired power plants are expected to be built this year by power companies based in Asia.

Australia to benefit the most from this coal boom

India is currently one of the world’s biggest importers of coal, mostly from Indonesia, Australia and South Africa. India’s domestic coal supplies stand close to 700 MT while it imports around 210 MT. In its 2015 World Energy Outlook, the IEA predicts that Australia’s coal producers will be the biggest beneficiary from the coal boom in India and Southeast Asia. Although the demand for coal would remain subdued in China, Japan, The United States and Europe, Australia would still be able increase its coal exports to around 424 MT per year until 2040. In fact, IEA even predicts that Australia could pass Indonesia as the world’s biggest coal exporter by 2020.


Although IEA predicts the phasing out of some of the inefficient coal-based power plants along with increased investments in renewables and reduction in GHGs, it needs to more closely analyze the trend that is slowly but steadily gaining momentum in India and Southeast Asia. The biggest loser of the India-Southeast Asia coal boom would be Liquefied Natural Gas (LNG) producers as they are already suffering from their own economic problems. Australia and the U.S., two nations that have substantially increased their LNG export quantities, have begun winding up their spending on LNG projects that were worth billions of dollars. A weak global LNG demand curve is also responsible for the increased LNG supply glut and its low prices. Related: Saudis Planning For A War Of Attrition In Europe With Russia’s Oil Industry

(Click to enlarge)

Taking all these developments into consideration and looking at the larger picture, we see that the developments in the Asian coal market could be potentially catastrophic for the gas industry in the coming time.

By Gaurav Agnihotri for Oilprice.com

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