China faces peak coal demand for the first time as a cooling economy and shifts in industry hit consumption, paving the way for a decline in global use even as India becomes the main driver for demand, the International Energy Agency said.
China is the world’s top coal consumer but its uptake of the dirty fossil fuel has waned with the country moving more towards less energy-intensive sectors. State efforts to cap consumption in a bid to clear up the choking smog that smothers the country’s major cities have also hit demand.
“The golden age of coal in China seems to be over,” the International Energy Agency (IEA) said on Friday in its Medium-Term Market Report to 2020, adding that a “peak coal” demand scenario was now probable due to stagnating housing and infrastructure development.
The report did not include findings from the climate change talks in Paris earlier in December in which world leaders agreed on broad measures to combat climate change and rein in emissions and pollution.
But IEA Executive Director Fatih Birol said on Friday during the report’s presentation in Singapore that investments in projects using high-carbon fuels were risky following Paris.
“Investors are free to do what they want, but I see there will be growing pressure on high-carbon investments in the years to come,” he said.
“Renewable energy is becoming a mainstream fuel. With declining costs of renewables and strong government support, they are becoming the favourite option for many investors.”
Lower-than-expected power demand as the use of electricity drops in heavy industry will also contribute to the decline in coal consumption, the Paris-based group added.
The IEA said China’s coal demand would fall to 2,640 million tonnes of coal-equivalent (Mtce) by 2020 from 2,843 Mtce in 2014 based on the group’s peak-demand scenario.
As a result, global demand will dip to 5,509 Mtce in 2020 from 5,540 Mtce in 2014, the IEA said. Under a less bearish outlook, however, demand could still see a 0.8 percent annual growth to 5,814 Mtce in 2020, it added.
Slowing demand, environmental policies and more alternative fuels will keep coal prices low, the IEA added.
Thermal coal prices have fallen by 80 percent since their 2008 peak and are back to levels last seen in 2003, below $45 per tonne.
“The continuous pressure from shale gas in the United States, stronger climate policies, and especially, the overcapacity and slowdown in China all contribute to the oversupply. This glut will be even more acute if a peak coal demand in China becomes real,” the IEA said.
INDIA TAKES OVER
India is expected to pick up some of the slack in Chinese demand with its coal use seen up 149 Mtce by 2020, accounting for half of the rise in world coal demand over the period, according to the IEA.
“India is the only major economy with strong coal growth (and) India will become the second-largest coal consumer in the world, bypassing the United States,” the group said.
“The Indian government has ambitious plans to provide full electricity access to the 240 million people still without it and to expand the manufacturing sector … New coal investments and further growth in coal consumption are inevitable.”
But despite the strong growth, India will not be able to fully offset the drop in Chinese demand, it added.
“India and China have different governance and growth models, with energy-intensive heavy industry playing a considerably smaller role in India.”
In other regions, the IEA sees demand from the Association of Southeast Asian Nations (ASEAN) growing by 79 Mtce to 218 Mtce in the six years to 2020, accounting for more than a quarter of the global demand rise during the time.
In the United States, coal consumption will fall by 75 Mtce by 2020, given ample supplies of domestic shale gas reserves, while Europe’s demand will decline 22 Mtce, it said.
On the supply-side, the IEA expects Australia to overtake Indonesia as the world’s top exporter by the end of the decade.[Source:-REAUTERS]