Contributed by Robert Lyman © 2017
Robert Lyman is an Ottawa energy policy consultant and former public servant of 27 years, prior to that a diplomat for 10 years.
A few days ago, the International Energy Agency (IEA) published a report on international coal markets, including a review of the recent past and projections for the five-year period to the end of 2022.
The IEA seems to play a dual role. On the one hand, it is a professional agency of the Organization for Economic Cooperation and Development (OECD), and thus staffed by experts who take pride in carrying out objective economic analysis of energy supply and demand trends. At the same time, it has increasingly adopted the political perspective of the European countries that represent the majority of the OECD’s members, and has accepted uncritically their adherence to the thesis that humans are causing catastrophic global warming. The IEA’s reports are thus a blend of the analytical and the politically correct.
The IEA earns a significant amount from the sale of its reports, so the full report on coal is only available at a high price. The agency did, however, publish an executive summary report online. It can be read here:
The following are the main conclusions of the report, with my comments interspersed.
Global coal demand has dropped 4.2 % since 2014, and fell 1.6% in 2016 to reach 5,357 million tonnes of coal equivalent (Mtce). This was caused mainly by lower natural gas prices; increased electricity generation by renewable energy and energy efficiency improvements in the developed countries; reduction of coal use for air quality reasons (i.e. to reduce local pollutants, not greenhouse gases) in China; and the effect of carbon taxes in some countries, including notably the United Kingdom.
Coal’s share in the global energy mix may decline from 27% in 2016 to 26% in 2022, as reduced demand in the developed countries almost matches increased demand in India, Southeast Asia and other parts of Asia. Total coal consumption is projected to increase to 5,530 Mtce in 2022.
“Prospects for coal are bleak throughout most of Europe”, yet Poland and Germany continue to be major coal consumers and likely will remain so until the end the projection period and beyond.
Some Asian countries are about to increase their coal consumption sharply. India has a growing fleet of coal power plants and robust power demand growth. Coal demand is projected to increase there at nearly 4% per year through 2022. Pakistan and Bangladesh, extremely poor countries with large coal reserves, are other sources of demand growth. Pakistan’s coal demand will more than quadruple between 2016 and 2022.
The interplay of market factors and policy choices makes it very difficult to project what will happen in terms of international coal trade. As a result, the IEA foresees a period of continued coal price volatility, with prices largely dependent on developments in China, the largest market. The report observes that, despite higher coal prices recently, producers have slowed down investment because of uncertainty and fears of oversupplying the market.
The mood in the United States coal industry “brightened” in 2017, as high natural gas prices reduced the switch from coal to natural gas, regulations were reviewed (and removed) and the financial environment for coal mining improved. U.S. coal production is forecast to be around 510 Mtce in 2022, equivalent to current levels, while demand declines to 470 Mtce, a drop of 1% per year on average over the period.
The central message of the report concerns coal’s “stagnation”. It downplays the fact that, contrary to the story line preferred by those who claim the world will soon rid itself of fossil fuels, global demand for the most carbon intensive of all the fossil fuels is in fact still growing. The world is not following the “green” playbook.
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