Global coal demand looks set for 'a decade-long period of stagnation'

Photo by Kevin Frayer/Getty Images

Worldwide coal demand continues to decline, according to a new report released by the International Energy Agency (IEA) on Monday.

The group said that total coal consumption fell 1.9% to 5.357 billion tonnes of coal equivalent (Btce) in 2016, leaving total demand down 4.2% over the past two years, close to the largest decline on record since the IEA started compiling statistics more than 40 years ago.

The only time a larger percentage decline came over a comparable period was in the early 1990s. In absolute terms, it was the largest decline on record, reflecting that coal demand has increased substantially over recent decades.

The IEA put the weakness down to lower gas prices, a surge in renewables and improvements in energy efficiency, along with declines in consumption in large economies such as China, the United States and European Union, offsetting strong growth in India and many parts of Southeast Asia.

According to The Australian, an abundance of gas in the US as a result of new techniques such as hydraulic fracturing helped drive an 8% drop in US coal consumption last year, meaning that 2016 was the first year on record where coal was not the largest source of the country’s electricity supply.

Source: NAB

In China — the world’s largest coal consumer — demand fell by 5% last year, driven by ongoing reforms to the nation’s industrial and mining sectors that saw many illegal or inefficient firms shut down, limiting both coal demand and supply.

Recently, China has also introduced temporary cuts on Chinese steel production in an attempt to improve air quality in many northern Chinese provinces over winter. The cuts, coming into effect in November, are scheduled to run through to mid-March, further limiting coal demand.

Looking ahead, the IEA sees worldwide coal demand remain nearly flat between 2017 and 2022, forecasting that it will increase to 5.53 Btce, the same as the average seen in the past five years.

“[This means] that coal use will have had a decade-long period of stagnation,” the IEA said.

And with energy demand set to increase over the next five years, the group says that coal’s dominance of global energy markets will likely wane further in the coming years.

“The share of coal in the global energy mix is forecast to decline to 26% in 2022, from 27% in 2016 because of sluggish demand compared with other fuels,” the IEA says.

“Although coal-fired power generation increases by 1.2% per year through 2016-22, its share of the power mix falls to just below 36% by 2022, which would be the lowest level since IEA statistics began.”

Keisuke Sadamori, director for Energy Markets and Security at the IEA, summed up the outlook succinctly.

“The energy system is evolving at a rapid pace all around us, with a more diversifying fuel mix, and the cost of technologies going down,” he said. “But while everything else is changing, global coal demand remains the same.”

Sadamori, given an increased focus on the climate effects of coal consumption, says there needs to be greater focus on new technologies in the sector.

“Urgent action is needed to support Carbon Capture, Utilisation and Storage (CCUS) technologies, which made important strides last year but still lags far behind other low-carbon technologies,” he says.

“There is a broad agreement among energy leaders from both government and the industry that urgent action is needed to support CCUS, without which the climate challenge will be much more difficult to tackle.

“Indeed, without CCUS, coal use will be seriously constrained in the future.”

You can read more here.

NOW READ: 2 charts that show China’s importance to the global coal industry

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.