Coal hits a plateau

The EIA is predicting that demand will remain at around today’s level of approximately 160 quadrillion British thermal units until 2050 © Bloomberg

Has the world hit peak coal? The latest projections from the US Energy Information Administration, published in its International Energy Outlook 2017 last week, suggest that global coal consumption has gone about as high as it is ever going to go. The EIA is not predicting a sharp peak with consumption now likely to decline steeply, but it expects a long plateau, with demand stable at around today’s level of approximately 160 quadrillion British thermal units until 2050.

Of course, as discussed here last week, no one should put too much faith in any long-term energy projections. The revolutions in shale oil and gas and in renewable power over the past decade have been vivid demonstrations of the uncertainties inherent to markets and technological progress. The EIA makes clear that all its projections are “not predictions of what will happen, but rather modelled projections of what may happen given certain assumptions under different scenarios”. The assumptions used in the “reference case” that shows the plateau for coal demand include “continual improvement in known technologies based on current trends” as well as “current laws, regulations, and stated targets”. Surprises can be expected from both technology and politics.

As Trevor Houser of the Rhodium Group pointed out on Twitter, a key factor in the EIA downgrading its forecast for coal demand since the 2013 energy outlook is that it has cut its assumptions of economic growth, and hence of energy demand more generally. Still, projected coal consumption has been downgraded more sharply than oil or gas, and projected renewable generation has actually been revised up.

China, which accounts for more than half the world’s coal consumption today, is critical for the global outlook. The EIA thinks coal consumption in China may now have peaked, as industrial demand for steelmaking and heat declines from now on, and after 2023 demand for power generation is increasingly displaced by renewables and nuclear.

In the short term, meanwhile, as Clyde Russell of Reuters observed, “coal is enjoying a stellar year”, particularly in Asia. The price of benchmark thermal coal in Australia has more than doubled since January 2016.

Carbon Tracker Initiative, the think-tank that works on climate change and finance, suggested that any signs of life in the US coal industry were likely to be shortlived. It published an analysis arguing that in the next few years it would be “the exception rather than the rule” for it to be cheaper for US power companies to keep old coal-fired plants running, rather than building new gas-fired or renewable generation.

There was a similar argument from John Kemp, also of Reuters. Coal’s problems were primarily caused not by its contribution to climate change, he suggested, but by the fact that oil and gas are more convenient and useful.

The competitive threat posed to coal by gas might be getting stronger because there is downward pressure on LNG prices worldwide. ExxonMobil has taken the unusual step of cutting the price of LNG it is selling from the Gorgon plant in Australia to Petronet of India on a 20-year contract. RBC suggested the new terms would cut Exxon's revenue by about 15 per cent; an ominous sign for companies seeking to agree new sales contracts to justify investments in new LNG plants.

The fact that China, in particular, supplies the great majority of its power from coal-fired plants is often cited as an argument against the environmentally friendly credentials of electric vehicles. Liam Denning of Bloomberg Gadfly argued that while that criticism has some validity, it ignores the point that the carbon-intensity of electricity in China is projected to fall sharply over time.

In the Financial Times, Harrison Mitchell and Nicholas Garrett of RCS Global, a consultancy, discussed another environmental and social issue created by the rise of electric vehicles: their need for cobalt, lithium and other critical materials. They argue that there is a potential imbalance between the environmental benefits to developed markets and the social and environmental costs in the developing world where the raw materials for batteries are mined.”

With the destructive hurricanes Harvey and Irma now passed, the industry has been battling to restore damaged infrastructure. Harvey, which brought “unprecedented” rainfall and flooding to southern Texas, was a human disaster, but has proved to have had a mostly transitory impact on the US oil and gas industry. In Florida, about 96 per cent of homes and businesses now have power, but outages caused by Irma were still affecting 372,000 customer accounts as of Monday. The desperate conditions faced by people struggling without power in the Florida heat are a reminder of how dependent we are on reliable energy supplies.

Another view

Quote of the week

Hillary Clinton, explaining in her new book What Happened about what she described as her greatest regret of last year: her comments on the coal industry during her run for the Democratic presidential nomination:

“You say millions of words in a campaign and you do your best to be clear and accurate. Sometimes it just comes out wrong . . . The point I had wanted to make was the exact opposite of how it came out.”

During the campaign, Mrs Clinton said at a televised meeting in West Virginia: “We’re going to put a lot of coal miners and coal companies out of business.”

Chart of the week

From the presentation for the EIA’s International Energy Outlook 2017. In the central “reference case”, demand is expected to grow over the next 30 years for all energy sources except coal, with renewables growing the fastest.

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