Coal Use Is at Record Levels: What is the Future of Coal? Peak Coal Supply and Peak Global GHG Emissions Soon, Peak Coal Demand Soon Thereafter

     2022 and 2023 are the biggest years for global coal consumption. The new IEA report on coal has some great graphs. Many show the great upheaval in coal consumption and coal prices through the first year of the Russian-Ukraine war. The economic slowdown in China has helped to lower prices back to normal faster. Coal export destinations changed considerably, especially from Russia where much less coal was exported to Europe and much more to China. The abstract of the report sums up the current coal situation: “Today, coal remains the largest energy source for electricity generation, steelmaking and cement production – maintaining a central role in the world economy. At the same time, coal is the largest source of man-made carbon dioxide (CO2) emissions, and curbing consumption is essential to meeting international climate targets.” The IEA predicts coal demand will peak by 2030. That means coal demand will remain high, possibly even higher than now, till 2030.

     While most developed countries are effectively reducing coal demand, many developing countries are holding steady or increasing coal demand. China alone has over 300 GW of coal-fired power plants in planning and construction. China also uses a massive amount of coal for industrial purposes. India is also a major coal consumer. Other countries building coal-fired power plants include Pakistan, Vietnam, Indonesia, and others. Germany was more or less forced (not really as they could have used nuclear) to open new lignite coal mines and keep coal plants running that were scheduled to be mothballed, in response to the loss of cheap Russian coal and natural gas.

     The IEA also predicts that global coal use is set to decline in 2024 and plateau through 2026 from today’s peak. One key unknown is the performance of hydropower. If hydropower declines due to droughts, particularly in China, it will be replaced by coal which could keep demand high. China produces about half of the world’s coal and consumes more than half of it.

     The high prices coal was sold for in 2021-2023 have led to better financial stability for coal producers. Declines in coal consumption in Europe and the U.S. are expected to offset increases in China and India to keep global consumption on a general plateau. Many developed countries are decreasing their thermal coal use. A few are increasing consumption. An example is Indonesia burning more coal in the process of ramped-up nickel production. Non-power thermal coal used for industries such as steel and cement and lignite coal use are expected to increase slightly by 2026. We should note that as in the case of Indonesia, China, and other Southeast Asian countries, a significant amount of coal is still being burned for the production of clean energy – solar panels, wind turbines, battery materials mining, etc.

     Met coal demand is likely to plateau, according to the report: “Metallurgical (met) coal, which includes coking coal (hard, medium, and semi-soft) and coal for pulverised coal injection (PCI) is a primary ingredient in steelmaking. Coke, which is generated from the heating of coking coal in a coke oven without oxygen, is also employed in the manufacture of carbides, ferroalloys and other chemical compounds.”

The graph below shows the profitability of thermal and met coal. 

     Chinese coal demand is driven mainly by thermal coal for power. IEA notes that coal quality mined in China in 2022-2023 has an average lower calorific value, a lower heating value, so that likely increased emissions per unit of coal burned. However, China is aiming for peak carbon emissions by 2030, so the push is strong for renewables, gas, nuclear, and other energy sources to replace thermal coal.

     China’s coal conversion sector continues to grow strongly. IEA explains it here as follows: “Coal conversion refers to the processes that use coal as a feedstock to obtain another commodity as the output (usually via coal gasification). Depending on the final product, it is typically classified as coal-to-liquids, coal-to-gas (SNG or synthetic natural gas) or coal-to-chemicals, with methanol playing an important role as a final product or as an intermediate product to produce olefins and other chemicals. For over a decade, coal conversion in China has been seen as a strategy to reduce foreign dependence, amid increasing oil and gas imports, and to monetise domestic coal assets – particularly those considered stranded due to quality or location – while promoting local jobs. On the flip side, these processes are generally energy inefficient, water- and CO2-intensive, and have very volatile economic profitability due to its dependence on oil and gas prices.” The graph below shows the typical end uses for gasified and liquified coal.

 

 

     Through 2026, IEA predicts India will drive global coal demand growth, as China’s economy remains somewhat constrained by lower growth. India expects between 19 GW and 27 GW of new coal capacity coming online before 2027. They also expect a 6% growth in non-power thermal coal capacity for industry.

 

 

     The U.S. is expected to continue retiring old coal-fired power plants. As the graph below depicts thermal coal generation is expected to drop from the current 148 GW (about 715 TWh) to about 112 GW (about 542 TWh) through 2026. That is nearly a 25% drop. Some of that will be replaced by renewables and some by natural gas. As the second graph below shows, U.S. coal production is likely to continue its downward trend.

 

 

     Coal consumption is expected to resume dropping in the EU after the unplanned rises due to energy costs associated with Russia’s invasion of Ukraine. 

     In some of the developed Pacific countries such as Australia, Japan, Taiwan, and South Korea, coal consumption continues to drop. Indonesia is expected to increase coal demand significantly in the near term, led by its rising nickel production. Much of that nickel will be used in EV batteries. Vietnam and Thailand are expected to have moderate increases in coal demand through 2026. Thailand burns lots of lignite coal for power generation. Pakistan, Bangladesh, and Sri Lanka are expected to have growing coal demand over this period.

     Global coal demand is expected to decline, especially after the unexpected increases due to the Russia-Ukraine war. It is unclear, however, how much it will decline.

 

 

     IEA suggests that coal supply has peaked in 2023 and will drop from here on out. However, that drop will likely be slight and look more like a plateau: “Global coal production is forecast to have risen by 1.8% in 2023, with continued growth in India, China and Indonesia more than offsetting declines in the United States and the European Union. Thus, 2023 marks another all-time high in global coal production, totalling 8741 Mt. Steam coal and lignite account for about 87% of global coal production and their growth in production accounts for similar share of the global production increase. Coking coal accounts for the balance, driven by strong growth in Mongolia.”  

 

     As the graph below shows, global coal trade volumes are expected to peak in 2023. In that sense, one could say that we are finally beginning a global decline in coal. By 2030 the global decline in coal should be well underway.

 

     China retained market advantages and was shielded from the temporary global coal shortage, in part by a large increase in imports from Russia.

 

 

First Peak Global Greenhouse Gas Emissions, then Peak Coal Demand, then Peak Oil Demand, and finally Peak Natural Gas Demand (At Least That Seems to be the Most Sensible Approach)

     The IEA predicted in their World Energy Outlook 2023 that carbon emissions would peak globally by 2025. An article reviewing the report by Carbon Brief’s Simon Evans and Verner Viisainen thinks we are at peak greenhouse gas emissions now in 2023. In any case, it seems that we are quite close to the peak. That means that from now or soon going forward we will be for the first time actually reducing emissions globally on a continuing trend. Since emissions reduction is the real metric and the real purpose of the energy transition, perhaps this should be celebrated. In terms of solving global warming, it’s just a drop in the bucket but perhaps we can salvage some real symbolic value. It also shows human effort at the global level can result in positive change. Peak emissions is a milestone that will be seen on graphs for years to come. The question remains: What will be the slope of the peak? Will it head steadily downward, plateau, or something in between? The IEA projections for coal use look like something in between and since those are a fair proxy for global emissions, those emissions may be between as well. Falling emissions is an important, though mainly symbolic, milestone. In any case, it’s all downhill from here! I think the next one might be renewables covering all demand growth. This has yet to occur.  It too is a mostly symbolic milestone. Going forward, both natural gas and renewables will replace coal. They will also grow to meet increasing power demand from electrification.

     The IEA report has coal peaking at or before 2030 and both oil & natural gas peaking in a few years after that in most scenarios. As I have noted before, I think the IEA can be too aspirational and not realistic in their predictions. I noted in their hydrogen predictions that they were overly bullish for hydrogen. They do offer a range in their forecasts by depicting different scenarios. I tend to favor the most pessimistic ones for oil and natural gas. I think natural gas demand will grow if prices are decent and will not peak as soon as they predict. Even from an emissions intensity perspective, the sequence should be coal, oil, then gas for peaking and phase-out. Natural gas is the lowest emissions hydrocarbon and should continue to replace higher-emitting hydrocarbons where applicable. There is room for quite a bit more of this. Domestic gas is better for emissions reduction than imported LNG, but LNG life cycle emissions continue to be improved. Peak oil demand depends on many factors including EV adoption, other electrification, diesel fuel replacement in industry, transport growth in developing countries, and general growth in agriculture, mining, and industry. CO2 emissions from industry are expected to peak around 2025 under the most conservative IEA scenario.

 

 

References:

 

Coal 2023: Analysis and forecast to 2026. International Energy Agency. December 2023. Coal 2023 - Analysis and forecast to 2026 (windows.net)

Analysis: Global CO2 emissions could peak as soon as 2023, IEA data reveals. Carbon Brief. October 26, 2023. Analysis: Global CO2 emissions could peak as soon as 2023, IEA data reveals - Carbon Brief

World Energy Outlook 2023. International Energy Agency. World Energy Outlook 2023 (windows.net)