During 2019, the biggest annual thermal coal prices drop in more than a decade has hit the Australian coal exporters. It is raising doubts about industry projections on future coal demand.
The thermal coal spot price that is required to burn for electricity generation was US$66.20 ($95) last week, more than one-third less from US$100.73 ($145) just before a year.
According to the government’s latest resources and quarterly energy report, The export earnings reduced from the last year’s industry record A$26bn to A$20.6bn this year and A$18.8bn next year.
The price drop came as China now relies more on domestic coal stocks and restricts its use of imported coal, mainly from Australia.
This year, the global thermal coal use also declined after rising in 2017 and 2018 as per the International Energy Agency. However, it predicts a slight increase over the next five years due to increasing demand from India to offset a shift away from it in Europe and the US.
Several thinktanks analyzed the trends of 2019 in detail. They found that after almost an uninterrupted growth for four decades and more, coal-fired electricity was headed for a 3% fall. It is the biggest drop on record in which coal-fired power has been a primary driver of the climate crisis.
In Europe, demand for coal-fired power reduced historically by 23%. In spite of Donald Trump’s vow to resurrect the local industry, in the US, it dropped 14% within the first nine months of the year.
Among clients of major Asian markets, where Australia sells its coal, coal generation increased 0.5% in China but dipped in India because of the much smaller increase in electricity demand than in recent years and the boost of hydro energy due to a large monsoon.
The Australian coal exporters faced the most significant change when China imposed an unannounced ban on their product to boost the domestic industry because it faced a trade war with the US. Several Chinese ports restricted or delayed Australian coal imports.
Tim Buckley of the Institute for Energy Economics and Financial Analysis said China had constrained supply from Australia while increasing it from some other producers, like Mongolia.
According to Buckley, other than China’s greater emphasis on domestic production, the rise of increasingly cheap renewable energy and liquified natural gas caused the fall in coal use. However, when liquified natural gas burned, emissions are about half of the coal, but when extracted possibly more, according to some research.
Buckley also said that the drop in the thermal coal price would not necessarily continue until 2020. However, the Australian industry could not rely on demand from the south, and Southeast Asia continues to grow as current trends suggested.
However, the IEA report of the Paris-based International Energy Agency (IEA) that released earlier this month suggested Australia’s thermal coal exports would increase 1.6% a year until 2024 with the growing demand from India and Southeast Asia. It is at odds with Buckley’s assessment. IEA thanked experts from coal companies and the Minerals Council of Australia for their input into its analysis.
Matthew Canavan, the resources minister, recently told The Australian that Australia would “need more than Adani” to supply with the expected growth in demand from developing Asian countries. It would likely lead to the opening of the Carmichael mine being developed by Indian billionaire Gautam Adani, and further coal mines in the Galilee Basin of Queensland.
Energy consultancy Wood Mackenzie’s previous analysis said that any new mines in the Galilee Basin would likely face the competition with existing mines in the state and New South Wales.
IEA had repeatedly underestimated the pace of growth in renewable energy, Buckley said, and possibly Asia would follow a similar pattern as Europe and the US. He named the country like Vietnam that had invested in the tenfold increase in the installation of solar power this year, albeit off a low base.
“Coal-fired power is down because it’s the highest marginal cost source of electricity in most markets,” he said. “Renewable energy is now available at scale and at lower prices. That will increasingly be the case.”
The US miners are facing major problems for the collapse of the thermal coal price. It is leading to seven filings for bankruptcy in the past four months as per the quarterly report of the government’s resources and energy.
Even if Australian producers had faired better because of their higher quality coal and the weaker currency, but market conditions would also affect. Analysts say the slump has threatened the viability of billions of dollars of coal projects.
The report also disclosed that prices for metallurgical coal had also noticeably fallen that is used in steel-making and accounts for around 60% of coal export earnings of Australia.
Buckley said China’s targeting of Australian coal appeared political and was ongoing. “It introduced an artificial barrier to Australian coal on an ad hoc basis, saying it could not unload ships, and that intensified later in the year,” he said.
Last year, according to the Intergovernmental Panel on Climate Change, limiting global warming to 1.5C, a goal referenced in the Paris climate agreement, would require the use of coal for energy to fall 59-78% below 2010 levels by 2030.
However, The Minerals Council declined to comment on the matter.