About half the world's coal is being produced at a loss, as buyers turn away. ALCOA Anglesea coal mine, Australia. Photo: Takver via Flickr.
Tide turning against global coal industry
Chris Rose / DeSmogBlog
2nd October 2014
King Coal's reign is coming to an end, writes Chris Rose, at least as a fuel for generating electricity. Following a price collapse half of all production is being sold at a loss - and major coal users like China are still moving away from the high-carbon fuel.
King Coal is becoming King Canute, as the industry struggles to turn back the tide of reducing demand, falling prices and lower earnings.
There are increasing signs of the demise of the world's dirtiest fossil fuel, from a global oversupply to plummeting prices to China starting to clean up its polluted air.
Last week, the Carbon Tracker Initiative published an analysis - Carbon Supply Cost Curves: Evaluating Financial Risk to Coal Capital Expenditures - identifying major financial risks for investors in coal producers around the world.
The demand for thermal coal in China, the world's largest emitter of toxic greenhouse gases, could peak as early as 2016, says the report.
The analysis also highlights $112 billion of future coal mine expansion and development that is excess to requirements under lower demand forecasts.
"In particular it shows that high cost new mines are not economic at today's prices and are unlikely to generate returns for investors in the future", said an accompanying media release.
"Companies most exposed to low coal demand are those developing new projects, focused on the export market ... With new measures to cap coal use and restrict imports of low quality coal in China, it appears the tide is turning against the coal exporters."
A gloomy outlook for prices, asset values
The analysis added that China's desire to reduce imports will impact prices and asset values for export mines in the US, Australia, Indonesia and South Africa.
"King Coal is becoming King Canute, as the industry struggles to turn back the tide of reducing demand, falling prices and lower earnings", said Anthony Hobley, CEO of Carbon Tracker Initiative.
A recent article in Mining Weekly also says the coal industry is indeed facing tough times.
The article noted Coal Association of Canada president Ann Marie Hann agreed that about half of the global coal output at current pricing was being produced at a loss.
"Until a global rebalance between demand and supply takes place and the global economy rebounds, the coal industry will unfortunately probably see some more bad news over the coming months", Hann said.
The story added that the prices for thermal coal, which is used to generate electricity, had fallen in recent years from about $190 per tonne in mid-2008 to $75 per tonne this year.
Metallurgical coal (used to make steel) had dropped from a high of more than $300 per tonne in late 2011 to less than $120 per tonne.
Under attack from all sides
To perhaps make matters worse for the coal industry, it is being publicly attacked by the oil and gas sectors, which are trying to position themselves as cleaner fossil fuels.
According to the Responding to Climate Change website, a number of the world's leading oil and gas companies voiced their concerns about climate change at last week's UN Climate Summit, arguing they can offer a future coal cannot.
"One of our most important contributions is producing natural gas and replacing coal in electricity production", Helge Lund, Statoil's chief executive, was quoted as saying.
Kevin Washbrook, a director for Voters Taking Action on Climate Change, a Vancouver organization that has fought against a proposed new coal export facility at Fraser Surrey Docks, agrees the thermal coal sector is in decline.
"I think coal is in everyone's sights these days because coal is climate change", Washbrook told DeSmogBlog. "Coal has to be on the chopping block for sure."
Washbrook added that the UN, the International Energy Agency, big banks and insurance companies are acknowledging that the vast majority of coal must stay in the ground if humankind is to avoid catastrophic, runaway climate change.
"We need to see this current downturn [in the thermal coal sector] for what it really is - our last good opportunity to leave coal behind and start the transition to emission-free energy sources."
Chris Rose is a journalist for DeSmogBlog and other news outlets, and a communications consultant. Born in Vancouver, his interests include politics, history, demographics, the economy, the environment and energy-related issues.
This article was originally published on DeSmogBlog.
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