- March 7, 2023
- Posted by: Tom Hedge
Due to its steady decline in the 2010s, coal was proclaimed dead once again, the IEA stating that solar power would be crowned the new king. However, the all-pervasive goal to transition to renewable or other low-carbon sources has been compromised by the ongoing energy crisis.
With natural gas prices skyrocketing more than that of any other fuel, many regions have switched to alternative fossil fuels and therefore, coal prices have risen. Other factors influencing its increased demand include technical and weather issues affecting the production of alternative fuels.
This article will briefly review the turbulent history of coal demand in recent years, followed by an overview of the situation in several regions and forecasts for the years ahead.
Fluctuations in Coal Demand in Recent Years
Coal consumption in the 2000s was at an all-time high, of which China was a significant catalyst, requiring coal to fuel its fast-growing industrial economy.
Global consumption dropped again by the end of the 2010s. Factors influencing its decline included the widespread introduction of policies to address climate change and the Shale Revolution in the US.
By the end of the 2010s, coal’s share of electricity generation fell to 36.5% and its share of the global primary energy supply dropped had dropped to 26%. Add the pandemic into the equation and the demand for coal dropped further, with prices reaching the lowest point approaching summer 2020.
As economies worldwide recovered, prices rose steadily – then came the conflict between Russia and Ukraine to add more disruption. So, while environmentalists are quick to dismiss this commodity, we have had to rely on it and will continue to do so until renewables are truly able to replace it. Were it not for coal, things would have been considerably more difficult for nations wanting to avoid Russian gas.
The Current Situation
China and India
China, the consumer of 53% of global coal consumption, saw an increase in demand in 2022 which was also due to heat waves and the requirement to power air conditioning. The reduced prices of Russian coal made it easy for China to capitalise on the opportunity and in August 2022, coal power generation in China rose by 15% year-on-year, reaching more than 500 terawatt-hours.
Like China, India was not hard hit by the consequences of the situation in Ukraine and was able to purchase cheap Russian coal. Since 2007, India’s consumption has actually doubled. Both countries have also increased their domestic production of coal in order to reduce the reliance on imports.
In Europe, some retired coal plants have been reinstated and plans to close other plants have been postponed (among other actions taken to offset the challenges brought on by the war in Ukraine.)
In addition, technical issues at nuclear plants in France caused those plants to be closed for maintenance. This, combined with the fact that weather conditions reduced hydro power output, pushed certain nations to increase their coal consumption. Germany has increased consumption more than any other European state.
With Russia being a prominent exporter of goal before sanctions were introduced, the supply deficit in Europe was filled by South Africa, Colombia, Indonesia, and small-scale exporters including Tanzania and Botswana.
Forecasts for Coal Demand
Coal prices have decreased since the start of the year and, according to models by Trading Economics, this commodity is forecast to trade at 221.15 USD/MT by the end of this quarter; 12 months from now, it is predicted to trade at 257.92 USD/MT.
Despite the large increase in China’s coal consumption in recent years, the growth rate is forecast to be 0.7% per year between now and 2025, thanks to the increased investment in renewables.
In many other regions, including Europe and the US, it is expected that the peak for coal demand has already arrived and that it will plateau between now and 2025, again due to ongoing investment in renewables. India is one exception, expected to increase its use of coal steadily between now and then (both metallurgical and thermal coal).
The IEA have predicted that in Europe, both coal and gas will decline by 10% annually over the next three years and a similar decline will be seen globally (one reason being that China is expected to have installed the greatest amount of renewable generation facilities by 2025).
According to the IEA, governments, banks, investors, and mining companies are showing a lack of appetite for investing in coal, especially thermal coal (China and India being the main exceptions).
After the last few years’ events, it turned out that coal was not dead after all. The pandemic reduced its global demand, the lowest point being in summer 2020. It began to rise as the economy recovered and, as war struck, plans to phase it out were put on-hold due to the need to replace Russian gas.
Heat waves in China in 2022 meant that demand increased – however, with China expected to invest in renewable generation more than any other country, global demand is forecast to decrease over the next few years.
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