At the same time as government negotiators were haggling over the text of a global climate treaty in Bonn last week, coal executives attending the annual Coaltrans conference in Barcelona were avoiding discussing their industry’s climate credentials and sticking to the sector’s practical prospects.
Climate change campaigners and politicians are ratcheting up the pressure on coal; leaders of the G7 nations in June pledged to work towards the decarbonisation of the global economy by the end of the century, while divestment campaigns are trying to starve the sector of the funds it needs to develop new sources of the fuel.
Not all of coal’s problems are climate-related, however. The global market is struggling amid a global surplus of supply built up over the past five years, while consumption in the most developed nations is shrinking as renewable energy and natural gas eat into coal’s traditional demand. Prices are at their lowest in a decade and according to some analysts may never recover to their former levels.
The only bright spot for the industry seems to be Asia, where developing nations are still planning to burn coal long into the future as they pursue economic development. Analysts forecast that while China shifts its coal-fired power generation to the interior of the country and shies away from imports, emerging nations in Southeast Asia will pick up most of the slack.
In Barcelona it was evident that the coal sector hasn’t formed a coherent response to the threat posed by climate-related regulation and the long-term shift towards cleaner energy. While a few mounted vociferous attacks on the UN’s climate discussions, most preferred to focus on the coal sector’s future from a financial and economic perspective.
It’s hard to tell whether the coal industry as a whole remains in denial over its impact on the global climate, or whether miners and their customers have accepted that coal is under attack and are simply doing their best to survive the current energy commodity downturn. What is clear, however, is that coal’s horizon is shrinking.
Robert E. Murray, CEO of Murray Energy, which recently bought Goldman Sach’s Colombian mining operations, was the most vocal opponent of environmental regulation, calling climate change a “hoax” and referring to “global goofiness” in an interview.
“I’d like to see the UN eliminated,” Murray said. “We wouldn’t have the Paris meeting if I had my way. My climate change strategy is to let people know that while the Arctic icecap is melting, the Antarctic icecap is larger than it’s ever been. I think global warming is a hoax, a political power grab of America’s power grid and maybe the world’s. It’s got nothing to do with the environment; it’s politics.”
He was joined by Alexey Danilov, director of Russian coal trader CarboOne, who said that methane from livestock was a far greater problem than emissions from coal plants.
At the same time, however, Murray appeared to acknowledge that coal’s decline in the US is as much a product of market forces and the emergence of shale gas as it is the result of more stringent regulation.
“I’m competing against $1.40-1.50/mcf shale gas,” he said. “There are 20 LNG ports waiting for permits from the Obama administration. If we can get those ports opened up, get the pipelines built and get the gas out of the country to the nations that need it, until something happens to this glut of gas, [coal’s slump] will go beyond 2017.”
Murray also voiced the industry’s belief that despite the shift to cleaner energy, coal has a role to play in the future.
“We’re always going to be 30% of the US power generation,” he stated. “We have to convince the American people and the investors that at least 30% of power generation has got to be coal or the lights will go off. Natural gas will have an equal share.”
Many other delegates acknowledged coal’s role as one of the main culprits behind rising CO2 emissions, though they were quick to add that their industry isn’t as vulnerable as climate campaigners would like to believe.
“The industry knows coal isn’t going away,” one analyst said on the sidelines of the event, pointing to strong demand growth and numerous plans for large-scale coal-fired power plants in Asia.
India’s INDC, for example, states that “in order to secure reliable, adequate and affordable supply of electricity, coal will continue to dominate power generation in future,” while the Philippines may build as many as 23 coal-fired power plants by 2020.
Last month the IEA noted that “Southeast Asia is one of the few regions in the world where coal’s share of the energy mix is projected to increase: by 2020, coal’s share of primary energy demand rises to 21%, overtaking natural gas. By 2040 coal just surpasses oil to become the most consumed fuel, accounting for 29% of the mix.”
In the developed world, coal defends its role as one of a low-cost energy provider, and highlights the fact that zero-carbon alternatives still require high levels of subsidy. Graham Weale, chief economist at RWE, pointed out that Germany’s bill for renewable subsidies now stands at €28 billion a year. “Thankfully, the fossil fuels are cheap and that to some extent counterbalances,” he said.
“We must focus on the goal of decarbonising at the lowest cost, and for that reason coal is important at the moment,” Weale said. “Coal will remain important over the coming decades, albeit with declining demand, and anyone who wants to force coal out in a hurry and replace it with something else is only going to drive up the wholesale price of electricity which is going to create major problems for industry.”
In addition to the gradually increasing pressure from environmental regulation in the developed world, coal is also coming under pressure from natural gas. A wave of export-oriented projects led by the US and Australia looks set to deliver a 30% increase in liquefied natural gas supply to the world market through 2020, depressing prices and threatening margins for coal-fired power.
Trevor Sikorski, analyst in London at Energy Aspects, believes this cheaper natural gas and the onset of carbon pricing will do as much, if not more, damage to coal’s long-term prospects than the fight for market share among miners.
“There’s around 120 million tonnes a year of new gas coming into a market of around 400 million tonnes, so it’s swelling the size of the seaborne traded market and it’s going to tie global gas together in a way that’s never happened before,” Sikorski said in Barcelona. “The only place to get demand for this gas quickly is in power, and the only way to do that in the short term is to displace coal.”