Introduction

Coal has been a dominant source of energy for centuries, powering industries and generating electricity around the world. However, in recent years, the global energy landscape has witnessed a significant shift towards cleaner and more sustainable alternatives. This transition has had a profound impact on the market trends in global coal demand. In this blog, we will explore the evolving dynamics of the coal industry, the factors driving changes in coal demand, and the implications for the future.

According to the International Energy Agency (IEA), worldwide coal production and supply investments in 2023 are predicted to increase by nearly 10% from $135 billion in 2022.According to the International Energy Agency's World Energy Investment 2023 report, approximately 90% of this investment will most likely be in the Asia Pacific area, particularly in China and India, where both countries are looking to boost production and create new coal mines.

In 2022, over 40 GW of new coal plants were permitted, the highest total since 2016, with almost all of these being in China, which is focusing on energy security after many sections of the country experienced blackouts in recent years.

According to S&P Global Commodity Insights, China and India are expected to increase their domestic coal production in 2023, potentially leading to a decrease in US seaborne coal demand. China's domestic coal production is projected to reach 4.9 billion MT in 2023, up from 4.5 billion MT in 2022, while India's coal production is forecasted at 950 million MT, up from 840 million MT in the previous year.

The International Energy Agency (IEA) predicts that global coal demand will plateau at around 8 billion MT through 2025 but acknowledges that uncertainties such as changes in global economic activity, weather conditions, fuel prices, and government policies could influence the trajectory. Developed economies are expected to reduce coal consumption as renewables increasingly replace it in electricity generation. However, emerging and developing economies in Asia, including India and China, are projected to increase coal use to support their economic growth, although they are also adding more renewable energy capacity.

The Australian Office of the Chief Economist anticipates a decline in thermal coal prices as the factors behind the record price surge in mid-2022 unwind. They expect the Newcastle benchmark price to fall from an average of US$360 per tonne in 2022 to around US$200 per tonne in 2024. Metallurgical coal prices are also expected to ease further due to oversupply and slowing global growth.

Declining Coal Consumption in Developed Economies

One prominent market trend in global coal demand is the declining consumption in developed economies. Countries like the United States, Germany, and the United Kingdom have been reducing their reliance on coal due to environmental concerns and the adoption of cleaner energy sources.

The trend of declining coal consumption in developed economies has been driven by various factors, including environmental concerns, policy shifts, and the increasing competitiveness of renewable energy sources. Let's delve deeper into these aspects:

Environmental Concerns: Coal combustion is a major contributor to greenhouse gas emissions, particularly carbon dioxide, which is a leading cause of global climate change. Developed economies have recognized the urgent need to reduce their carbon footprint and transition to cleaner energy options. As a result, there has been a growing emphasis on reducing reliance on coal for electricity generation.

Renewable Energy Advancements: The declining cost and increasing efficiency of renewable energy technologies, such as solar and wind power, have made them more economically viable alternatives to coal. In many developed economies, government support and incentives have spurred the growth of renewable energy capacity. As these sources become more affordable and accessible, they have started to displace coal in the energy mix.

Stricter Environmental Regulations: Governments in developed economies have implemented stricter environmental regulations to limit the emissions from coal-fired power plants. These regulations include emission caps, pollution control requirements, and the introduction of carbon pricing mechanisms. Compliance with these regulations often requires costly retrofitting of coal power plants, which has further incentivized the shift towards cleaner energy sources.

Government Policies and Energy Transitions: Many developed economies have formulated long-term energy transition plans that prioritize the phase-out of coal. These plans include targets for renewable energy deployment, the closure of coal-fired power plants, and the promotion of energy efficiency measures. The commitment to these policies creates a favourable environment for investment in clean energy infrastructure and technology.

Public and Investor Pressure: There has been a growing awareness and concern among the public and investors about the environmental and health impacts of coal. Environmental advocacy groups, as well as socially responsible investors, have exerted pressure on companies and governments to move away from coal. This pressure has influenced public opinion, corporate decisions, and government policies, leading to a decline in coal consumption.

Growing Demand in Emerging Economies

The Asia-Pacific region is now the centre of gravity for global economic growth. This dynamic region accounts for 55% of the global population and 53% of global GDP. Rapid economic expansion has resulted in significant increases in regional energy demand, and emerging Asia will continue to lead in energy demand growth. According to ERIA's study, "Preparation of Energy Outlook and Analysis on Energy Saving Potential in East Asia," which covers East Asia, Southeast Asia, and India, primary energy demand in these countries is expected to grow at a faster rate of 2.5% per year on average, from 4,910 Mtoe (Million tonnes of oil equivalent) in 2011 to 8,912 Mtoe in 2035.

Coal's share of total primary energy demand will fall from 51.1% in 2011 to 46.6% in 2035. Although coal will continue to account for the majority of primary demand, its growth will be slower, expanding at a rate of 2.1% per year. Coal usage will nearly double in absolute terms, from 2,507 Mtoe in 2011 to 4,155 Mtoe in 2035. Because of a high increase in power generation demand, which has grown at 3.5% per year on average since 2011, coal is expected to remain the leading source of electricity generation in the East Asia Summit (EAS) region. The region's coal usage is expected to remain the highest, accounting for more than 60% of total power generation until 2035.

Increased coal usage in East Asia, Southeast Asia, and India is primarily due to an increase in energy consumption to drive economic expansion. Despite fast-growing natural gas demand in these countries, coal will remain strategically vital for many in the region's energy security.

China is the world's largest coal producer and user, and it possesses the third-largest coal reserves, with 114.5 billion tonnes of recoverable reserves. China produced 3.65 billion tonnes of raw coal in 2012. The existing coal power fleet is double the size of the US fleet. Coal-fired power plants account for 69% of China's installed capacity, making the country heavily reliant on coal as a source of energy.

However, due to severe local pollution, China has strengthened norms and implemented actions targeted at decreasing the amount of coal-based electricity to less than 62%.3 Though the country will continue to rely on coal for power generation and other heavy industries for decades to come unless it discovers its own technological breakthrough to tap shale gas in its territory, China's coal consumption will likely peak in 2020, with the share of coal-fired power projected to decrease from 79.0% in 2011 to 69.2% in 2035 under the business-as-usual (BAU) scenario.

India is another major coal consumer in Asia, with estimated coal reserves of 301.56 billion tonnes, of which non-coking coal accounts for around 88%. India's coal demand would expand at a 4.0% annual rate, reaching 844 Mtoe in 2035. It has estimated possible to enhance the All-India coal production to 778.21 million tonnes in 2021-22 through a prolonged investment strategy and a higher emphasis on the deployment of current technology. During 2022-23, the total coal production in India was 893.08 MT, representing a 14.76% increase. Coal India Limited (CIL) and its subsidiaries produced 622.63 MT in 2021-22, compared to 596.22 MT in 2020-21, representing a 4.4% increase. CIL coal production in 2022-23 was 703.21 MT, representing a 12.94% increase.

According to the BAU scenario, India's power generation will increase at a 5.5% annual rate to 3,827 terawatt-hours in 2035, and coal will continue to dominate India's power-generation mix, accounting for more than 65%.

Shifting Coal Trade Patterns

The changing dynamics of coal demand have also influenced global coal trade patterns. Traditionally, coal-exporting countries like Australia, Indonesia, and the United States have relied on international markets, particularly China and India, for their coal exports. However, as the demand from these key importers decreases, coal-exporting nations are exploring new markets to maintain their export volumes.

Some countries are diversifying their export destinations by targeting emerging economies in Southeast Asia and Africa. Additionally, there is an increased focus on promoting the use of high-quality coal in industries such as steel production, where the demand remains relatively stable.

In 2019, global coal commerce achieved its largest amount ever, totalling 1,445 Mt, a 0.8% rise over the previous year3. In 2019, trade accounted for 19% of world coal consumption. Trade in thermal coal (which includes lignite and some anthracite in this part) climbed 1.1%, while trade volumes in metallurgical (met) coal were steady. Thermal coal accounted for 76% of global coal commerce, with met coal accounting for the remainder. The great majority of coal traded in 2019, 92% (1,331 Mt) was via sea.

International (thermal) coal trading patterns are changing. Historically, trade could be divided into two geographic basins: the Pacific Basin, where Japan and Korea were the leading importers, and the Atlantic Basin, where European countries imported the majority of traded coal. In the coal trade, South Africa and, to a lesser extent, Russia connected the two basins. As the Atlantic market has diverged from the Asian market, this no longer depicts international coal trade patterns. For example, in 2019, India's coal imports nearly doubled those of the EU, indicating a shift to Asia and the decline of Europe in international coal markets.

With total exports of 455 Mt in 2019, Indonesia remained the world's top coal exporter (by weight). Australia came in second with 395 Mt, although it still leads the league table in terms of energy and economic values. China was the greatest coal importer in 2019, with 308 Mt, followed by India with 249 Mt.

It is predicted that trade volumes will fall by 10%, or roughly 150 Mt, in 2020, the greatest drop ever, with seaborne coal commerce accounting for the majority of the decline. Thermal coal trade volumes are predicted to fall by 10%, while met coal trade volumes will fall by 12%. The largest exporters will bear the brunt of the absolute loss in exported volumes, Indonesian exports are predicted to fall by 51 Mt (-11%) and Australian exports by 30 Mt (-8%). India has experienced the greatest absolute decline in imports (-41 Mt). Only Vietnam (+18%, +8 Mt) and possibly Turkey will raise their coal imports among major importers.

As coal demand improves in 2021, traded volumes will rise as well. Exports are predicted to increase by 31 Mt (2.4%) to 1,323 Mt in 2021, with seaborne coal trade accounting for 26 Mt of the increase. This means that export volumes will remain significantly lower than pre-Covid levels. More imports from India (+12 Mt) and Southeast Asia (+10 Mt) are supporting the recovery. This improvement in import demand is projected to help Australia and Indonesia in particular. Australian coal exports are predicted to rise by 20 Mt, while Indonesian exports will rise by 6 Mt.

Conclusion

In conclusion, the global coal industry is undergoing a significant transformation in response to changing dynamics in coal demand. Developed economies such as the United States, Germany, and the United Kingdom are witnessing a decline in coal consumption due to various factors. Environmental concerns, policy shifts, and the increasing competitiveness of renewable energy sources are driving this trend. These countries recognize the urgent need to reduce their carbon footprint and transition to cleaner energy options. Stricter environmental regulations, government policies, and pressure from the public and investors have further incentivized the shift away from coal.

On the other hand, emerging economies in the Asia-Pacific region, particularly China and India, are expected to increase their coal use to fuel their economic growth. Despite efforts to incorporate more renewable energy capacity, these countries still heavily rely on coal. The region's rapid economic expansion and growing energy demand contribute to the continued importance of coal as a source of power generation and energy security.

The changing coal demand has also affected global coal trade patterns. Traditional coal-exporting countries such as Australia, Indonesia, and the United States are exploring new markets as demand from major importers like China and India decreases. They are diversifying their export destinations and focusing on industries like steel production to maintain stable demand.

While the long-term trajectory of coal remains uncertain, it is evident that the industry will continue to play a significant role, particularly in emerging economies. However, the global shift towards cleaner and more sustainable energy sources, driven by environmental concerns, government policies, and advancements in renewable technologies, will shape the future of the coal industry. Innovation and the transition to cleaner alternatives are crucial in addressing climate change and reducing greenhouse gas emissions.