- The Writer holdsÌýan MSc in Eurasian Political Economy & EnergyÌýfrom King’s College London andÌýalso anÌýMA in European Studies from Sabancı University.
Coal stands as the second most important energy resource after oil for energy consumption. As a source whose abundance has spread across the globe, its availability is destined to be much longer in comparison with other conventional hydrocarbons, namely oil and gas.
Since coal is the most carbon-intensive fuel among other hydrocarbons, mounting environmental problems have forced many states to take further steps in combating the stem of CO2 emissions from power generation. This has been done through decommissioning ageing coal power plants, enacting laws and regulations as well as utilizing the latest innovative technologies, which have been on the agenda of many states to fulfill the goals of the Paris Climate Agreement signed at Paris Conference/COP 21. According to coal market outlook published by IEA in 2015, an overall decline of 2 percent in coal consumption is estimated between 2014 and 2020 in the world’s energy mix, suggesting that the global coal market could be in the doldrums in the years ahead.
In its flagship publication of World Energy Outlook (WEO), the International Energy Agency reported that the world’s coal output came to a standstill as of 2014 for the first time since IEA records began back in 1971. In 2015, news on coal was not much better, when it experienced another unanticipated decline in absolute terms and contracted by 221 million tons (Mt). Steam coal, cooking coal and lignite production fell off in 2015 to a level that has not been seen since 1999 when all three types of coal production tumbled, according to the IEA’s Key Coal Trends.
Coal demand in the OECD countries peaked in 2007 and is not expected to recover for the foreseeable future given the developments of climate change and the pursuit of local pollution policies. Decline in production can be attributed to some structural as well as some temporary factors. In traditional industries that consume the majority of coal, a decline has been experienced after growth in two digits since the beginning of this century. Secondly, the diversification policies implemented mostly in OECD countries have resulted in investments in other sources of power generation other than coal. For instance, overall 55 gigawatts of capacity added to the global renewable portfolio in 2014 was namely in hydro, solar, wind and nuclear power generation.
According to the IEA’s coal market outlook, China’s demand is expected to level off as a dominant coal market player and the prospect of coal demand is estimated to go into a long-term downtrend from 2030 onwards. The revision of coal’s downward trajectory is due to weak economic growth, the restructuring of economic development models as well as less reliance on traditional coal-based industries, such as the cement industry. Additionally, China poses the most vital factor among the causes mentioned above for the decline in coal production since China uses almost half of all coal produced. Far bolder renewable and climate policy objectives have ensued resulting in diminishing coal demand to levels which have not previously been seen in China. Despite the decline, international authorities expect that China will still remain one of the powerhouses for the coal industry, accounting for 45 percent of the production in the short term.
Global coal demand growth has experienced a marked slowdown, but there are two regions in the world that are likely to accelerate coal demand in the years ahead, namely India and ASEAN countries. As the second biggest consumer and producer of coal, India has ambitious plan in providing electricity to its population of hundreds of millions who still do not have full access to electricity. Since coal provides the lowest cost base option, a surge in India’s coal demand looks inevitable. As India does not have domestic coal reserves to meet its increasing power demand, it is therefore inevitable that India’s dependence on imports would increase, raising the question as to the effects this would have on India’s economic competitiveness and energy security. Additionally, boosting power generation for countries like Vietnam, Sri Lanka and Philippines has become a priority for their governments with the aim of reducing poverty and increasing energy accessibility for citizens. Since these factors would drive up the overall coal demand, nevertheless neither the overall demand from India or ASEAN countries� would be able to compensate for the gap that Chinese or OECD countries would leave.
Without considering the fallen oil prices� effect on the coal market, the analysis on why coal consumption is slowing down would remain incomplete, and therefore requires further investigation. First of all, the oil and coal market do not compete in principle, since oil is mostly utilized in the transportation sector while coal is used for power generation. Nevertheless, since most gas contracts are linked to oil prices, lower oil prices are reflected in lower gas prices. In the low oil price environment, coal, therefore, has to compete with gas prices since both are used for power generation. Thus, plunging oil prices are likely to heat up the competition between coal and gas.
Coal, used mostly for power generation, accounts for almost two thirds of its overall consumption, meaning that the future prospects for coal are inextricable linked to the power sector. Given the cost reduction in many renewable energy technologies along with the implications of stronger environmental policies, and the downward pressure from low oil prices, the coal market is under heavy pressure and needs to fight battles on many fronts. It is becoming increasingly evident that technological innovation is the only way forward for the coal industry to engage in the reduction of carbon emissions and elevate its status as a power source. I will analyze this element in next week’s article.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.Ìý
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