IEEJ：December 2017 © IEEJ2017

Coal 2017

Analysis and Forecast to 2022
Keisuke Sadamori. Director Energy Markets and Security
IEEJ Tokyo, December 2017
IEA
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Coal markets update• 2014-2016 marks the largest 2-year drop in global coal demand- The drop occurred in spite of economic growth• 2016 was the 3rd consecutive year of decline in China and in US- Coal to gas switch in power generation in US and Europe, and in industrial/residential
sector in China together with renewables were the drivers• India and ASEAN region remained centres of growth- Increasing power demand to support economic/ social development underpins coal use• A coal demand rebound is expected in 2017 led by China, India and US- Prices have remained strong throughout the year.

• Is this rebound a blip or a new trend?
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Power systems are in transformation
Change in coal power generation, 2012-16
United States
2,000150

1,500
TWhTWhUnited Kingdom
200

100

1,000500

5000
Coalgeneration2012

Coalgeneration
2012

Demand Renewables Natural gas Nuclear &Coalgrowthothersgeneration
2016

Germany

China
6,000400

TWh300TWh

Demand Renewables Natural gas Nuclear &Coalgrowthothersgeneration
2016

200
1000

4,000
2,0000Coal
generation
2012

Demand Renewables Natural gas Nuclear &Coalgrowthothersgeneration
2016

Coal
generation
2012

Demand Renewables Natural gas Nuclear &Coalgrowthothersgeneration
2016

Whereas power dynamics are country-specific, sluggish power demand, cheaper gas and renewables
expansion are squeezing coal in many countries across the globe© OECD/IEA 2017

IEEJ：December 2017 © IEEJ2017

But power demand growth is not over
Per capita power demand in select countries compared with OECD and world average
10,0009,000

OECD average

8,000

kWh/capita

7,000
6,000
5,000
4,000
World average

3,000
2,000
1,000
00

3,450
Millions of inhabitants
Bangladesh

PakistanIndonesia

India

China

Some populated countries with low per capita power consumption will ramp up power generation.
Coal will provide a good share of the additional electricity© OECD/IEA 2017

IEEJ：December 2017 © IEEJ2017

Will (when) prices start correction?
Weekly thermal coal prices in Europe120100

USD/t

806040200

Spot prices

Forward curve in January 2016

Increasing China coal demand and imports in 2017 have been pushing prices up© OECD/IEA 2017

IEEJ：December 2017 © IEEJ2017

A new force to drive prices

800

120

700

100

600

80

500

60

400

40300

202000Bohai-Rim steam-coal

Correlation
92 %

USD/t

CNY/t

Prices in Europe and China vs targets

Northwest Europe (ARA) (right axis)

Chinese policies targeting the green range gives a strong support international prices to stay within an
equivalent margin© OECD/IEA 2017

IEEJ：December 2017 © IEEJ2017

Coking coal prices: two spikes in half a year
Spot prices of thermal, PCI and hard coking coal in Australia
350
300

USD/t

250
200
15010050

Australian prime hard coking

Sep/17

Nov/17

Jul/17

Mar/17

May/17

Jan/17

Nov/16

Jul/16

Sep/16

May/16

Jan/16

Mar/16

Nov/15

Jul/15

Sep/15

Mar/15

May/15

Jan/15

Sep/14

Nov/14

Jul/14

May/14

Jan/14

Newcastle

Mar/14

Nov/13

Jul/13

Sep/13

May/13

Jan/13

Mar/130Australian ULV PCI

The volatility of spot coking coal prices shows the fragility of its supply chain© OECD/IEA 2017

IEEJ：December 2017 © IEEJ2017

Global coal demand stagnates
Coal demand forecast 2016-22
6,000
Total demand
5,000

OtherEuropean Union

4,000

United States

Mtce

ASEAN
India

3,000

2,000
China
1,00002015

2016

2017

2018

2019

2020

2021

2022

After the staggering growth in 2000-2013 and the decline thereafter, coal demand will stabilize at thecurrent level© OECD/IEA 2017

IEEJ：December 2017 © IEEJ2017

The geography of coal demand does matter
2343

Beijing-Tianjin-Hebei

37

Other regions
Annual coal consumption inboilers to be phased out (Mt)

Yangtze river delta andother Eastern China7UHV under construction
Pearl river delta(Guangdong)

Whereas further development of UHV lines will move demand from coastal areas to the West andNorth, coal boilers will be replaced by gas and electrical solutions© OECD/IEA 2017

IEEJ：December 2017 © IEEJ2017

Increasing production in India is impacting international markets
Coal imports avoided since 2013
90807060

Mt

504030201002013

2014
Solar + wind2015

2016

Domestic coal production

Looking ahead, performance of Coal India is key© OECD/IEA 2017

IEEJ：December 2017 © IEEJ2017

Remaining US coal is gaining resilience
Coal capacity additions and coal power generation in US
15

2,500

10

2,000

51,500GW

TWh0-51,000-10500-15-2002010

2011

New capacity

2012

2013

2014

2015

Retired capacity

2016

2017

2018

2019

Net capacity addition

2020

2021

2022

Coal generation (right axis)

After closure of high-cost mines and inefficient coal power units, the decline of the coal generation willslow down. Gas prices are key© OECD/IEA 2017

IEEJ：December 2017 © IEEJ2017

Thermal coal trade in contraction with many caveats
Difference in thermal coal exports/imports by country (2016-2022)
850
830

Imports

Exports

810
790
Mtce

770
750
730
710
690
670
650

Traditional uncertainty about China’s imports has spread to many other countries.
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CCUS is making real progress

Illinois Industrial CCS

Petra Nova

(Source: ADM)

(Source: NRG)

Quest ‐ Scotford Upgrader

Al Reyadah(Source: Shell)(Source: CSLF)© OECD/IEA 2017

IEEJ：December 2017 © IEEJ2017

CCUS is making real progress• CCUS installed on existing assets which have sustainable businessmodel• Low technology risk (“keep it simple” approach)• Attractive, well understood storage geology or enhanced oil recoveryopportunity• Coalition of public and private stakeholders• Clear source of revenue to cover CCUS costs over asset lifetime© OECD/IEA 2017

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Despite recent progress, CCUS needs a boost

The IEA, key countries and the world’s largest energy companies have shared acommitment to advance CCUS
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Where are coal markets going?
• Global coal demand is set to stagnate through 2022
- Forecast remains fundamentally the same as the last year’s forecast• Coal demand in China will decline slowly, with annual fluctuations determined by market needs- In 2017, economic rebounding and low hydro output are driving coal demand growth in China after three years ofdecline• Growth will be concentrated in India, Southeast Asia and a few other Asian countries- Despite renewable push and lower gas prices, additional power demand will be partially met by coal

• Global trade could contract, but uncertainty is at highest- Imports increase in China and Korea in 2017 are not sustainable; India’s success to rein in imports will be key• Coal use will be constrained in the longer term without Carbon Capture, Utilisation and Storage- CCUS is needed to meet our climate ambitions. The IEA is working to engage industry and policymakers to build newmomentum.

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