IEA: Rumors of the Coal Industry’s Looming Death are Greatly Exaggerated

(E&E News, December 14) – China’s appetite for coal, even in the face of international pressure for reducing carbon emissions, will help push the world to a consumption record of 9 billion tons by 2019, according to new projections released this morning by the International Energy Agency.

In fact, IEA projects that rising coal consumption across Asia and other parts of the developing world will largely offset declines in coal use in the United States and Europe, where economic and regulatory headwinds have cut deeply into coal’s market share for power generation.

“Despite the public image of a dying industry, coal is still the backbone of electricity generation worldwide — not to mention steel production — and produces more than 40 percent of power generated worldwide,” the Paris-based agency said in its latest “Medium-Term Coal Market Report.”

Moreover, the agency said, “Coal is abundant and affordable, it is easy to store and transport, and there are no geopolitical issues in the coal supply chain.”

In addition to China’s continued strong demand for coal in the near term, IEA forecasts that India and Southeast Asian countries will see “remarkable” growth in coal consumption, with India expected to become the world’s largest importer of thermal coal and second largest consumer of coal, a position currently held by the United States.

Among Organisation for Economic Co-operation and Development member states, Japan, South Korea and Turkey are also projected to increase their use of coal to meet rising energy demand, according to IEA.

“We have heard many pledges and policies aimed at mitigating climate change, but over the next five years they will mostly fail to arrest the growth in coal demand,” IEA Executive Director Maria van der Hoeven said in a statement timed to the release of the report.

Market flattens in the U.S.

Yet at least in the United States, coal is experiencing a deep slump, analysts say. The industry’s challenges range from sagging prices, competition from natural gas for power production, the rise of global competition within the coal sector and the adoption of new environmental regulations that are expected to have a chilling effect on coal demand.

“We’re not going to see coal generation at nearly the levels they saw in the past,” said Jeff Archibald, a senior technical specialist who tracks coal markets for ICF International. “That doesn’t mean coal is going away entirely,” he added, noting that U.S. utilities are expected to retain some coal-fired generation even under EPA rules targeting CO2. “But 2015 is certainly going to be a challenging year.”

U.S. government data on the U.S. coal sector’s recent performance show that production for the first 11 months of 2014 was 909 million short tons, mirroring 2013 levels, and growth is projected to remain flat for 2015.

Coal consumption by U.S. utilities has increased slightly this year due to higher energy demand and higher natural gas prices, but the U.S. Energy Information Administration projects a 0.4 percent drop in demand in 2015 due to a new wave of coal plant retirements as the Mercury and Air Toxics Standards (MATS) rule takes effect and natural gas prices fall.

Exports of U.S. coal also have nose-dived over the last four years, from 125.7 million metric tons in 2012 to 96.2 million tons this year. That trend should continue into next year, when EIA projects that U.S. coal firms will export 82.7 million tons of coal.

ICF’s Archibald said that U.S. producers are facing a number of challenges on the export front, including stiff completion in key markets from foreign suppliers like Australia, Colombia and South Africa, as well as continued logistical hurdles to the shipping of coal by rail out of the Powder River Basin and limited seaport capacity.

Environmental groups have also had some effect on U.S. export markets by blocking the permitting of a number of new coal ports on the West Coast, which provide the most direct routes to Asian markets. As a result, more coal is being routed to Gulf Coast ports, such as the newly refurbished $300 million Impala Terminals Burnside facility in Darrow, La.

U.S. coal industry leaders, meanwhile, continue to rail against what they call a “war on coal” by the Obama administration, pointing to a series of U.S. EPA rules aimed at making deep cuts in emissions from coal-fired power generators, including carbon dioxide, the world’s most abundant greenhouse gas.

Coal producers, electric utilities and politicians in states where coal is produced and burned have been especially critical of the administration’s policies on coal, arguing the fossil fuel is an essential part of the electricity fuel mix and that efforts to eliminate its use will drive up energy prices without substantially improving air quality or improving public health.

Industry facing ‘greatest’ challenge

Luke Popovich, an NMA vice president and spokesman, said in a telephone interview that while market forces such as sagging coal prices and foreign competition are conditions that occur under normal economic cycles, the imposition of new regulations on coal’s use will have a permanent effect on the sector, with repercussions being felt well beyond America’s coal country.

“This is no longer about the coal fields in Appalachia,” he said. “This is about a robust and strong industry that provides jobs facing its greatest obstacle from its own government.”

Yet, IEA takes a more moderate view of the role that environmental regulation and other pressures will have on U.S. coal markets, at least in the near term.

“While our projections confirm the downward trajectory in U.S. coal consumption, this is far from a dramatic decline,” the agency said. “Despite climate plans, environmental regulation and shale gas production, there remains much low-cost coal in the United States and more than 250 gigawatts (GW) of coal capacity will remain at the end of the outlook period.”

While growth rates for coal consumption globally are not what they used to be, IEA projects that demand will continue to grow at an average annual rate of 2.1 percent through 2019. That compares with an actual annual growth rate of 3.3 percent from 2010 to 2013.

Most notably, Chinese coal consumption will not peak until well into the next decade, IEA says, and other developing countries in Asia and Africa are expected to see an increase in coal-fired power generation as they seek to provide energy to hundreds of millions, a point of concern for van der Hoeven.

“New plants are being built, in an arc running from South Africa to Southeast Asia, but too many of these are based on decades-old technology,” the IEA director said. “Regrettably, they will be burning coal inefficiently for many years to come.”

To counter the environmental downsides of coal emissions, particularly to the global climate, van der Hoeven stressed the need “to radically accelerate deployment of carbon capture and sequestration” and for greater investment in high-efficiency coal plants, especially in emerging economies.

E&E News, Daniel Cusick, 12/15/14