The Paris-based International Energy Agency (IEA), an intergovernmental organization that is part of the Organization for Economic Cooperation and Development (OECD), issued a report Monday saying demand for coal will most likely stall in coming years.
In the 141-page report, the medium-term market report for coal, says that while the world is currently burning more coal than it ever has, market demand for the commodity is expected to level off and not see marked increases in demand for the next several years, with decreases likely in even the most coal-dependent markets such as China.
In 2011, the world reached the peak of coal’s mixture of electrical generation worldwide, at 41 percent of energy production, the report said. That percentage is expected to dip to 36 percent by the year 2021. Coal consumption declined for the first time in 2015 according to the report, even after more than a decade of 4 percent annual growth in the market.
Demand for coal, the agency said, is predicted to not hit 2014 levels again until 2021.
The two largest consumers of coal, the U.S. and China, both saw reductions in the amount of coal consumed, and those reductions were not offset by upticks in coal use in other markets such as Russia, India, Indonesia and Vietnam.
Both China and the U.S., the two top producers, both saw decreases in the amount of coal mined, despite an unexpected rally in coal prices in 2016. That price increase, the report says, was driven by energy efficiency measures and energy diversification policies that led to growth in hydroelectric, nuclear, wind, solar and natural gas energy production.
The U.S. saw a decline in coal consumption of 15 percent, the largest year-over decrease ever seen, hitting a 30-year low. Cheap natural gas, as well as increasingly competitive renewable energy sources—notably wind—are primary driving factors in that decrease, according to the report.
The IEA said it expects coal consumption to continue to fall by about 1.6 percent per year, barring any significant reductions in natural gas costs that might speed the decline.
China, the report said, will remain the largest single coal consumer in the world. China will account for 50 percent of coal use and 45 percent of coal production by 2021, however demand for coal in China in 2021 is expected to be below the demand level of 2013.
India, another rapidly-developing economy, is expected to see increases in coal demand over the next several years, but those increases will most likely be offset by decreases in demand in China, the report said. Demand for steam coal, the type used to generate electricity, is expected to increase slightly in India the report said, adding the caveat that the Indian government is also trying to reduce coal imports. India also faces significant demand for coking coal, used in the production of steel. Because of the sub-continent’s booming steel industry and the inability of local mines to produce quality coking coal, the demand for imports is expected to increase slightly.
In Europe, the report says, technology developments that have made renewable energy more economically viable have impacted demand for coal, and the tenor of European regulators’ discussions regarding electricity production indicate a shift away from coal. The IEA predicts a large number of coal plant retirements in Europe over the next several years, stymying demand. The U.S. over the same time is also expected to retire coal plants, further reducing demand for coal.
The market for coal is spreading east, according to the IEA. The only significant expansions in coal plant construction are in Asia. Demand for coal is expected to remain somewhat stable in Northern Asian countries such as Japan, South Korea and Taiwan, whereas markets in Southeast Asia are expected to see increases in demand, since coal plants are a cost-effective way to increase electricity production in shortage areas.
A 2016 rally in coal prices, combined with smart business moves has buoyed the outlook for coal companies, the report said. The unexpected increase in coal prices over 2016, coupled with reductions in capital expenditure by mining firms and the closure of high-cost mines have put mining companies on firmer footing for the time being the report said. Continued pressure on climate change and serious air pollution issues could continue to hang over the head of the industry.
Another issue facing the industry is an investment reduction. With low and decreasing prices, capital expenditures are minimized and new coal production projects are not moving forward, the report said. As the U.S. and Europe move more significantly away from coal production, capital investment and technological advances from the U.S. and Europe could effectively dry up, further regionalizing the market.