1. NS4960 Spring Term 2018 Fundamentals Will Curb Coal
Oxford Analytica, Foul Fundamentals Will Curb Coal, June 2017

2. Overview I Coal prices rallied by more than 70% in 2016
Reversed five years of falling prices

3. Recent Developments I Recent developments
Coal imports by Pakistan, Turkey and several ASEAN nations will rise to 2021
In part checks the deceleration of seaborne thermal coal trade
The Panama Canal expansion is allowing Colombia to export more coal to Asia and trade flows should increase as the route gains traction
Mines restarted in Indonesia and Australia at the end of 2016
These will remain exception to the longer trend of declining supply

4. Recent Developments II
Recent developments (contd.)
The Chinese government is eliminating 500 metric tons (mt) of its coal capacity or 13% of domestic production.
No new Chinese mines will be opened until at least 2019
However Chinese government’s decision in April 2016 to limit annual production to 276 days reignited seaborne coal trade
Chinese imports rose by 40mt in 2016
Bottlenecks in global supply and distribution also supported higher prices

5. Government Actions I China
China’s 13th Five Year Plan set a target for reducing proportion of coal-fired power in overall energy mix by 4% to 55% by 2020
To achieve this at least 150 gigawatts (GW) of capacity is being cancelled or postponed
In 2017 government also ordered cancellation of more than 100 coal-fired power plant projects in 11 provinces
Only producers in western regions will be allowed to raise capacity

6. Government Actions II India
Output of Coal India Limited produces 80% of Indian coal
Production rose by 9% in 2016 aided by reforms targeting bottlenecks in the distribution and supply chain
Power sector recorded 3.3% surplus in electricity supply despite importing 20% less than the year before
India’s share of world output expected to increase from around 10% to 12.7% by 2020
Will surpass the U.S. to become the world’s second largest producer of coal
Seaborne volumes will stagnate due to
Lower import demand from India, and
Uncertain prospects for Chinese demand

7. Government Actions III
Indonesia
Indonesia expects to increase coal production by 7.5% per year until 2020
Country’s electrification program aims to add 35GW of electricity supply
Nearly 20GW will come from coal-fired plants
Australia
Indonesian thermal coal shipments to China are exempt from import tax under a bilateral free trade agreement
However Australia is competitive in Chinese market because the China-Australia Free trade agreement reduces the tax on imports of coal to 2% from standard 6%

8. Government Actions IV Russia
Colombia, Russia and South Africa will still pay 6% on their imports into China
With European demand uncertain, Russia in particular will seek to export more coal to the Pacific Basin, targeting
China and
Especially Japan.

9. Government Actions V Global Pledges
France has pledged to shut down its coal-fired power plants by 2023
Germany also plans to limit use of coal in power generation by 50% by 2013 and to be coal-free by 2050
Austria targeting using renewable energy for 34% of its power generation by 2020 and aspires to be come coal-free beyond that.
Countries that have planned to phase out coal by 2030 include
Netherlands
Finland and
Canada

10. U.S. Developments I
Trump administration is coal friendly but is unlikely to boost coal-fired power plant capacity meaningfully
Such plants
Take up to four years to build and
Have an expected life of around 40 years
Any near-term investment decisions will be taken with a long- term view on future energy policy
Completion also from more modern plants fed by natural gas
Gas fired plant can be started up in 15 minutes and reach full potential within five hours
A coal plant takes up to 7 hours to start and 12 hours to reach full power

11. U.S. Developments II
Coal’s advantage has been relative affordability in comparison to natural gas
Cost advantage being eroded with shale gas
U.S. power producers have been retiring older coal-fired plants built between the 1950s and 1970s and replacing them with more flexible gas units.
Ninety four coal plants have already been closed
Another 41 plants were closed in 2017

12. Innovations I Clean coal Important initiatives include
Clean coal technologies have been around for 10 years or so
Have yet to become commercially affordable on a large scale
Important initiatives include
Carbon capture and sequestration (CCS) – the carbon emissions are stored underground and
Carbon capture utilization (CCU) – captured carbon is used to produce useful materials (e.g., soda ash)

13. Innovations II Japanese Innovations
Since Fukushima nuclear disaster country planning 45 new coal plants
Using state-of-the-art high efficiency
Low emissions (HELE) technologies
Japan is planning to export the technology to developing countries
In addition the World Coal Association has set up studies to help
raise the efficiency of coal-fired plants and
minimize CO2 emissions

14. Assessment
Seaborne thermal coal market will continue its structural decline driven by
Environmental regulation and
The rise of renewable energies
Indian demand will continue to fall while Chinese demand may also ease holding down prices
However higher supply is equally unlikely
Persistent low prices will discourage mining companies from increasing output
Only way US miners are likely to reap direct economic benefits form the pro-coal administration in Washington is if
The dollar weakens and
Prices rise in Europe