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Page added on March 25, 2015

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King Coal faces the end of its reign

Consumption

The coal industry is in crisis. It has failed to recognize the structural shift in power generation driven by regulation rather than price and has missed the window of opportunity to invest in clean coal technologies. Now it faces a slow King Canute style demise, as elaborated by Ross McCracken, managing editor of Platts Energy Economist.

Back in May 2014, the Queensland Resources Council reported that more than 50% of Australian thermal coal was being produced at a loss. Consultants Wood Mackenzie estimated this March that nearly 17% of US coal production is uneconomic at current pricing levels, representing 162 million short tons of production capacity. In China, China Shenhua Energy Co., the country’s largest coal producer, in what is the world’s largest coal market, expects a 10% drop in domestic coal sales this year, equivalent to 47 million tons.

This is an industry in crisis. Not because there is too much coal available, which there is, but because in its key markets the prospects for demand growth are being slowly killed. The reason isn’t price – coal is dirt cheap – it’s the ‘dirt’ bit that is the problem.

China is hauling back what was the world’s largest ever expansion in coal-fired generating capacity in the interests of both local air quality and climate change. In the US and Europe, emissions regulations are forcing the closure of old coal plants and making new plants increasingly difficult to build. If construction of coal-fired generation plant stalls, then so too, eventually, does demand for thermal coal.

The change is perhaps most dramatic in China. Shenhua published its 2014 results in March, which showed a drop in commercial coal production from 318.1 million tons in 2013 to 306.6 million tons in 2014. Coal sales, which include third-party sales, fell even faster, dropping 514.8 million tons to 451.1 million tons year-on-year.

Its guidance for 2015 foresees commercial coal production falling further to 273.60 million tons, while coal sales are expected to drop 46.85 million tons to 404.25 million tons.

Shenhua believes the coal industry in China is entering a new paradigm, which is describes thus: “In 2015, the new normal state of the coal industry will become further defined. The development mode purely relying on the expansion of output and capacity is gradually dying out along with the conventional market competition model.” To address this structural change, Shenhua hopes to build itself into a “world first-class supplier of clean energy.”

But is the rest of the global coal industry adapting to this new normal? Instead of investing in clean coal technologies when the going was good and coal prices high, the coal industry simply invested in greater production capacity. Politically, instead of swimming with the regulatory tide, it tried to fight it. Now it faces a slow King Canute style defeat.

Most worryingly for the industry is that the window of opportunity for clean coal has been missed. All clean coal technologies are dependent on carbon capture and storage and nowhere in the world has anyone, not least the coal industry itself, been prepared to spend enough money to make CCS viable.

In the meantime, other options, which don’t produce the CO2 in the first place, have fallen in cost, making CCS look like an increasingly unnecessary gamble. The oil, and even the natural gas industry, should perhaps ask themselves whether they are swimming with or against the tide.

platts



12 Comments on "King Coal faces the end of its reign"

  1. Makati1 on Wed, 25th Mar 2015 5:50 am 

    ‘Clean coal’ is a joke. Coal is going to be burned by the billion tons until it is not available, just like oil and natural gas. They are ALL still cheaper than any ‘alternative’ and ALL ‘alternatives’ require lots of hydrocarbons to exist anyway.

    World coal usage last year = 7,600,000,000 TONS or a bit over one ton per person in the world.

    http://www.worldcoal.org/coal/uses-of-coal/

  2. Davy on Wed, 25th Mar 2015 7:24 am 

    Clearly this coal crisis is a combination of price, production costs, negative regulatory environment, and alternative sources pressures. The biggest of the above is production costs and the most discounted by MSM. Coal is suffering the same depletion pressures as oil. The global economy is also stagnating putting further pressure on the need for coal. The regulatory environment is raising the cost of production and consumption. These are multiple negative feedbacks converging. How could that be a positive with a foundational electricity source?

    This drop in coal growth is clearly a representation of the global economy in decline. These are the numbers one looks at to see the clear picture not the fluff out of the official reporting services globally. Alternatives and regulatory pressures are not enough to explain these growth decline issues. The MSM would like for us to think this is good and a step towards AGW mitigation. This is more BAUtopianism with hopium.

    In fact coal can’t go much lower without global economic destruction. Alternatives have no time and money to build out and replace coal. NUK is in decline. Gas is not making the break out. Coal is too significant a percentage of global power generation to be replaced significantly. Clean coal is a joke and always was. Now that prices are under pressure and production costs up the BAUtopian idea of clean coal is even more pie in the sky talk.

    Folks this is yet another of the many indications of an undulating plateau or beginnings of descent of BAU. Growth is very suspect now on multiple fronts. Coal is a canary in the coal mine. Add to that the oil issues, Nuk issues, and AltE stagnation and the picture is not pretty. Energy is economic activity despite what the corns will try to tell us. There is no substitute for energy in economic activity especially now with a complex global BAU. There is no breakout of efficiency and or decouple of energy and economic activity.

  3. rockman on Wed, 25th Mar 2015 7:47 am 

    First, let’s consider the validity of this statement: “Back in May 2014, the Queensland Resources Council reported that more than 50% of Australian thermal coal was being produced at a loss.” Maybe they teach a different style of economics down under but in the US if a company is PRODUCING (not developing) a product they tend to not intentionally do so at a loss.

    Second, such articles are classic examples of taking a bit of positive news, such as a reduction in the RATE OF INCREASE in coa consumption and lower prices and extrapolate it to ridiculous ends:

    In the 50’s and 60’s, which some would call the height of King Coal’s hay day, the world got 50 exajoules per year from coal. By 2012 that number has increased 300% to 150 exajoules per year. For the last 200 YEARS coal consumption has steadily increased with occasional minor slow ups and reductions similar to what we’re seeing today. And as far as new great and powerful forces fighting against coal consumption in recent years: the world has never seen a surge in coal consumption as we had in the last 10 years. Which IMHO is not just coincidental with the rise of both oil prices and expansion of certain economies such as China and India.

    It’s difficult not to expect coal and oil prices to regain higher price levels in the coming years. And while the growth rates in China and India has slowed they are both still growing.

  4. WelshFarmer on Wed, 25th Mar 2015 8:42 am 

    This article just doesn’t ring true and I agree with rockman. I also agree with Makati1. Clean and coal don’t belong in the same sentence. CO2 sequestration is only possible in a few very special sites like deep mines, and even there, the storage capacity is generally nothing like enough for the lifetime of the typical large scale power plant. I think the politicians understand this very well, but as we all know, there are a lot of votes in sweeping serious environmental problems under the carpet, sorry I meant, ground.
    And since the world’s anthracite is largely gone, what remains is mostly low grade brown coal which is even filthier. The politicians know this too, but then increasingly desparate attempts at $$$ growth is the only thing that matters, right ?.

  5. rockman on Wed, 25th Mar 2015 9:06 am 

    Farmer – “…what remains is mostly low grade brown coal which is even filthier.” You mean like our Texas lignite of which we have a minimum of 100 year’s supply? Which burned at the second largest source of GHG in the US. OTOH we are in the process of installing the largest CO2 sequestration project on the planet to capture the GHG from that same plant.

    And the motivation isn’t to save the world from climate change. It’s to avoid a fight with the federal govt over Texas GHG emissions. So even while Texas has as much wind power as the #2 and #3 states combined and is almost tied with the 3rd largest country we still get a lot of electricity from coal. And will continue doing so.

  6. Kenz300 on Wed, 25th Mar 2015 10:11 am 

    If the world is to have any hope of dealing with Climate Change it will need to stop building any more coal fired power plants and begin shutting down the oldest and dirtiest ones.

  7. Kenz300 on Wed, 25th Mar 2015 10:44 am 

    Around the world countries are beginning to transition away from fossil fuels.

    Even China is shutting down coal power and moving to more wind and solar.

    —————

    Beijing to Shut All Major Coal Power Plants to Cut Pollution

    http://www.renewableenergyworld.com/rea/news/article/2015/03/beijing-to-shut-all-major-coal-power-plants-to-cut-pollution

  8. Plantagenet on Wed, 25th Mar 2015 10:48 am 

    When Germany shut their nukes they switched to burning low quality lignite coal instead. Now they are using MORE coal, thereby releasing MORE CO2.

    http://www.telegraph.co.uk/finance/newsbysector/energy/10577513/Germany-is-a-cautionary-tale-of-how-energy-polices-can-harm-the-economy.html

  9. Kenz300 on Wed, 25th Mar 2015 12:47 pm 

    Quote — “Germany’s renewable energy sector is among the most innovative and successful worldwide. Net-generation from renewable energy sources in the German electricity sector has increased from 6.3% in 2000 to about 30% in 2014.[1][2] For the first time ever, wind, biogas, and solar combined accounted for a larger portion of net electricity production than brown coal.[3] While peak-generation from combined wind and solar reached a new all-time high of 74% in April 2014,[4] wind power saw its best day ever on December 12, 2014, generating 562 GWh.[5] Germany has been called “the world’s first major renewable energy economy”.[

    ————

    Renewable energy in Germany – Wikipedia, the free encyclopedia

    https://en.wikipedia.org/wiki/Renewable_energy_in_Germany

  10. J on Wed, 25th Mar 2015 4:46 pm 

    I don’t think the 30% is correct, but even if it is – it turns out that renewable is wrecking the classic biz model.

    Of course we can’t have hospitals or just about anything without base load power, and they are not getting compensated for the base load they provide.

    It will be interesting to see how this pans out in the long run. But coal in German is not going anywhere. That’s the basis for their entire living standard.

    No one is serious about CO2. Because if you’re serious about CO2 you have to be serious about nuclear.

  11. Go Speed Racer. on Wed, 25th Mar 2015 7:33 pm 

    We should burn car tires, old mattresses, shoes with holes in them, car seats and old dashboards. The resulting plume of black smoke will lower everybody’s air conditioning bill, by blocking out the sun. And it is a very good alternative to coal generating lots of power. We could bring back steam engines for the railroad but this time run them on shredded car tires. We could paint the trains green and call them ECO TRAINS.

  12. Gary on Wed, 25th Mar 2015 7:47 pm 

    To clarify:“Back in May 2014, the Queensland Resources Council reported that more than 50% of Australian thermal coal was being produced at a loss.” The data is for the state of Queensland. The economics are simple. The mines have ‘take or pay’ contracts with rail and port service providers, so would stand to lose more if they shut down. Secondly, shutting and opening a coal mine is ridiculously expensive and the companies are choosing to ‘ride out’ the downturn at the expense of higher cost exporters(US/Canada)using cash reserves built up in better times. Production by the world’s largest coal exporter, Indonesia, is declining with resources. The coal story is incomplete without mentioning Queensland’s major export is coking coal used in steel-making. Japan remains the major importer of Queensland coal, with India on the rise.

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