Global Markets: Peak coal in China? Not yet

China will be the coal giant for many years in the future. IEA projects that coal demand annually grows at 2.6%, more than 100 Mt per year during our outlook period. China will add more coal demand than any other country, but the we have entered a new time in which the outstanding growth from the past in all of the coal indicators, such as production, consumption and imports, will not be repeated.

Moreover, despite the general increasing trend, IEA forecasts temporary declines, for example during a very wet year we could see coal demand for power declining. Imports could also decrease at any time, depending upon prices and/or policy changes. After many years of unbelievable economic and coal demand growth, China has entered a more moderate path. Lower economic growth and also a lower energy intensive economy and higher diversification will curtail coal growth in China in the coming years.

According to IEA, economic growth in China needs more energy than nuclear, gas, oil and renewables can supply. Diversification efforts, the so-called anything but coal policy, will lead to big developments of hydropower, wind, photovoltaic (PV) and nuclear capacity and gas use. Additional non-coal generation in 2019 is assumed to be 1 200 terawatt hours, and gas demand will almost double during the outlook period. Despite such strong assumptions, as well as decreasing energy intensity in the Chinese economy and gross domestic product and power demand growth decoupling notably, additional coal is still needed to meet energy demand. Investments in new coal generation capacity and coal gasification plants also support this growth.

Therefore most of diversification investments, such as nuclear, hydro, PV and wind, are capital-intensive with low or very low running costs; therefore, longer-term trends might suggest peak coal in China during the next decade. However, we do not see that peak in the outlook period unless economic growth is much lower than assumed.

There is no other China out there

Annual coal consumption in India will grow 177 million tonnes of coal-equivalent, or over 250 Mt, at 5% annual growth on average, becoming the world’s second-largest coal consumer. India, despite problems to ramp up domestic production and to build coal plants at the desired pace, will see a solid increase of coal use and, to a lesser extent, coal production in the outlook period. We project that India will become the second-largest coal consumer, surpassing the United States, and the second-largest coal importer, close to China, as well as the world’s largest thermal coal importer.

Total coal demand increase of over 250 Mt during the whole outlook period is larger than the current demand of any country except China, United States and India. However, to put this in perspective, growth in China in a single year has often been higher than this during the previous decade.

Over two-thirds of the coal demand growth in India and the Association of Southeast Asian Nations (ASEAN) countries will be for power generation. Although the share of non-power coal demand in Asia is larger than in other regions, power will largely drive the coal demand increase in Asia. Electrification of highly populated areas with poor or no electricity access and power to fuel economic growth will trigger power demand in the region.

Driven by investments in coal power plants mainly in India, Indonesia, Viet Nam and Malaysia, coal consumption in the region will increase. Several countries in Asia are building coal power plants, but apart from China and India, the ASEAN countries represent the main area of growth, with over 30 GW of new coal power generation coming online during the outlook period. While this figure might look impressive, China has annually added double this on average since 2005.(Source: IEA)