Coal Market Analysis in the next 5 years:
Jose Luis Chalhoub
Preview:
Coal has been known as the most damaging source of energy for the environment and highly contaminant, and this is why many efforts have been carried out by especially the OECD nations to reduce their overall consumption and demand in the last years. But still non OECD nations and emerging economies still remain highly consumers of coal for their economic growth, which still remains one of their top source of primer energy for industrial consumption overall.
Currently, worldwide 30% of total energy demand and over 40% of the electricity generation comes from coal, according as well to the International Energy Agency:
Causes for the decline in reserves of coal:
In terms of the decline in reserves of coal globally, this happened mainly because of:
Limited investments in technology needed to extract coal and also for its production, at the time due to the impact to the environment, and based on the global commitments made under the umbrella of the Climate Change Agreements.
Many countries including the top consuming nations like China and India and also the United States have taken steps to reduce carbon emissions, so this has and would have also influence in the demand and supply of coal as a primary energy source,
Even if coal has been always considered since long time ago as top source of electricity, so much needed in emerging economies and the developing world.
Historical market conditions for coal based on supply and demand:
According to the International Energy Agency, coal use started ever since the Industrial Revolution and hence never stopped growing globally, and will be significant in the future, and in this regard, greater efforts are needed by governments and companies to embrace less polluting and more efficient technologies to ensure coal becomes a cleaner source of energy in the decades to come.
In this sense, it turns to be significant that from 2000 to 2012, coal resulted to comprise 46% of total added global primary energy, that is, the amount of global coal supplied was 1520 MTOE of the 3292 MTOE of additional global primary energy in the aforementioned period, and 200 MW/day was the total new coal generation capacity commissioned in the world in 2010 through 2014.
Even if the outlook for coal does not seem to be dwindling down so far, at least not in the next 5 years, due to the increased demand coming from China and India, and also from the United States, the coal industry has been experiencing an important decay in the last 15 years or more, especially from the 1990’s from the supply side, which has been decreasing at a faster pace than the demand.
Based on the ongoing ever stricter environmental regulations being progressively implemented by the EU, the US, in sum, the coal market overall has a long history of supply and demand struggles and definitely we are experiencing one today, when all things related to the environment are being so much subjected to public opinion scrutiny, and when natural gas everyday appears to be the cleanest substitute for coal in terms of electricity generation so far.
Main causes and determinants for increase in demand of coal:
1.) Increased levels of international trade and economic growth specifically in whats been called the emerging markets.
2.) Strategic role of China and India in the demand of coal in the last decade due to their sustained pace of economic growth based on the position played by coal in their respective energy mix.
3.) Since no major and massive technological advancements and breakthroughs are needed to revamp and install new facilities for coal production, then the rate of production of coal will keep up its pace in the next years which will meet the increasing demand from China and India.
4.) According to the International Energy Agency, coal consumption will climb to 4.32 billions of tons of oil equivalent for 2017, and the role of coal in the share of global energy mix will continue to grow in the next decade if no stronger policies are applied, the coal will catch up will oil in terms of demand globally.
Future in the short and medium term for coal in the US and globally:
But now when we have an election in the US with one candidate Donald Trump, supporting strongly the revival of the coal industry in USA, maybe we could see a resurgence of this source of energy in terms of supplies, that is if Mr Trump gets to win the next presidential elections in November, which could be a boost for coal, with China and India not backing off their demand of coal even if India signed recently the Climate Change Agreement just days ago.
Also the global efforts to find and develop new sources of non renewables energy and also the relevance gained by the natural gas as the substitute of petroleum have in general overshadowed the development of coal as top primary source of energy.
I would like to share this link, which is about a report done by the World Energy Council about current status of coal worldwide which might be of use for this submission as complimentary reading.https://www.worldenergy.org/wp-content/uploads/2013/10/WER_2013_1_Coal.pdf. Here is another link as complimentary: http://www.reuters.com/article/us-europe-energy-exchanges-idUSKCN11B1Q8?feedType=RSS&feedName=GCA-Commodities&utm_source=dlvr.it&utm_medium=twitter.
With current oil prices and if they keep this sustained pace, and depending also on the pace and speed of economic growth of countries like China and India, the latter experiencing a higher growth than the latter and its economy based on coal as well, then we could foresee in the next 5 years a rise in the demand of coal and also an increasing incentive for new efforts of exploration and discoveries of new sources of coal to expand the current base of reserves globally,
But it could happen that these efforts could be undermined if the price of coal rise significantly, and also we will see natural gas as a stronger competitor for coal and with more use as per electricity generator and also cleaner than coal for this end use, which would also contribute to the downsizing of coal reserves and also more efforts by OECD countries especially the ones transitioning to the use of non renewables in Western Europe specifically.
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