Peak Coal In China
Citibank has released an interesting report on "peak coal" in China - referring to peak demand rather than any supply driven peak of production (something I view as quite far off) - The Unimaginable: Peak Coal in China.
The limit to coal use appears to be how much pollution the Chinese population is willing to tolerate - a reminder that there is more than one "limit to growth".
- For the last decade, one of the most unassailable assumptions in global energy markets has been the ever-increasing trajectory of Chinese thermal coal demand. The consensus outlook for China’s coal demand, which currently accounts for more than 50% of global demand, has been so strong that the IEA called for coal to surpass oil as the leading global fuel before 2030.
- Beyond the possibility of peak thermal coal demand in China, a series of transformative forces are increasingly asserting their influence on the global power mix. Disruptive changes in technology costs and fuel markets are now set to ensure that the next ten years look little like the last twenty. US shale gas is just the beginning. Changes in the power mix, especially in Chinese coal demand, have serious ripple effects on three categories: (1) globally traded coal and commodities, (2) countries and companies reliant on coal production and (3) carbon emissions.
- Significant shifts in China’s economic structure and power sector demand a reassessment of coal’s perpetual climb. Key drivers include: (1) reduction of air pollution; (2) structural downward shifts in China’s GDP growth and energy intensity; (3) robust growth of China’s renewables and nuclear capacity, along with increased availability of natural gas from pipeline/LNG imports and domestic production; (4) efficiency improvements in coal power plants and energy demand.
- Citi expects this combination of factors to slow the power sector's use of coal, pointing to a possible flattening or peaking before 2020, although many global energy agencies continue to expect high coal demand in the years to come. We arrive at our results based on a detailed, top-down electricity supply-demand model for China, which factors in power demand, efficiencies, coal and non-coal power generation and capacity, among others. The same macro forces driving the economic transition and lowering power demand should also lead to a deceleration in coal’s use in other sectors. Our conclusions are supported by results from bottom-up, economy-wide analyses by the China Energy Group at the Lawrence Berkeley National Laboratory. Senior research staff at China’s National Development and Reform Commission suggested the possibility of peak coal demand by 2015. Further, our work builds on Citi’s extensive research on China’s transition and on the end of the supercycle in commodities and the mining sector
Ironically, a softening and potential drooping off Chinese coal demand is going to hit Australian exports hardest (Mongolia is the only country more exposed to Chinese import demand), which will no doubt be a headache for the newly ascendent coal mining industry which it seems may not get to enjoy it's victory in the recent Australian election.
ReNew Economy notes that the first major development for the mining industry under the regime of Tony Abbott is the cancellation of a $7 billion coal mining project - Tony Abbott gets crash course in carbon bubbles.
It didn’t take long for prime minister-elect Tony Abbott to get a lesson in the harsh realities of international markets. Just days after his election, his repeated promise to repeal the carbon price, the mining tax, roll back green tape and open the country up to business, one of the biggest mining projects in the country – the $7 billion Wandoan coal mine in Queensland – was scrapped.
This was something that was only supposed to happen under a Labor/Green government. But, as Glencore Xstrata CEO Ivan Glasenburg made clear on Tuesday, the world has changed. There is simply not enough demand from other countries, and prices are way too low to justify new projects.
This should have come as no surprise to Abbott’s closest advisors, presuming they are doing their job properly, and not just listening to the overtures of Gina Rinehart. Nearly a third of the world’s thermal coal supplies are losing money because of significant shifts in consumption and economic priorities in China, the world’s biggest coal user, and elsewhere.
What do you think? Leave a comment below.
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