INTERNATIONAL ENERGY AGENCY SEES "PEAK COAL" AS DEMAND FOR FOSSIL FUEL CRUMBLES IN CHINA / THE TELEGRAPH

International Energy Agency sees 'peak coal' as demand for fossil fuel crumbles in China

'The golden age of coal seems to be over. Given the dramatic fall in the cost of solar and wind, the question is whether coal prices will ever recover'

By Ambrose Evans-Pritchard

'The coal industry is facing huge pressures, and the main reason is China' Photo: AFP

 

 

China’s coal consumption has been falling for two years and may never recover as the moment of "peak coal" draws closer, the International Energy Agency (IEA) has said.

The energy watchdog has slashed its 2020 forecast for global coal demand by 500m tonnes, warning that the industry risks unstoppable decline as renewable technologies and tougher climate laws shatter previous assumptions.
 

In poignant symbolism, the peak coal report came as miners worked their final shift at Britain’s last surviving deep coal mine at Kellingley in North Yorkshire, closing the chapter on the British industrial revolution.
 

Mines around the world are at increasing risk as prices slump to 12-year lows of $38 a tonne, and the super-cycle gives way to a pervasive glut. The IEA said the $40bn Galilee Basin project in Australia may never become operational. There is simply not enough demand, even for cheap, open-cast coal.
 

“The golden age of coal seems to be over,” said the IEA’s medium-term market report. “Given the dramatic fall in the cost of solar and wind generation and the stronger climate policies that are anticipated, the question is whether coal prices will ever recover.”

“The coal industry is facing huge pressures, and the main reason is China,” said Fatih Birol, the agency’s director.

The IEA reported that China’s coal demand fell by 2.9pc in 2014 and the slide has accelerated this year as the steel and cement bubble bursts. The country produced more cement between 2011 and 2013 than the US in the entire 20th century, according to one study. This will never happen again.

Crucially, the switch is happening because the country is moving up the technology ladder and switching to a new growth model. The link between electricity use and economic growth has completely broken down. The "energy intensity" of GDP fell by 4pc in 2014.

Mr Birol said China’s coal consumption is likely to flatten out until 2020 before declining, but the definitive tipping point could happen much faster if president Xi Jinping carries out his economic reform drive with real vigour. Coal demand will drop by 9.8pc under the agency’s “peak coal scenario”.

The shift is dramatic. China’s coal demand has tripled since 2000 to 3.920m tonnes - half of global consumption - and the big mining companies had assumed that it would continue. The market is now badly out of kilter. Rising demand from India under its electrification drive will not be enough to soak up excess supply or replace the lost demand from China.



The share of global power from coal will drop from 41pc today to 37pc by 2020 before going into relentless decline.

While India has ambitious plans to extend power to 240m people without electricity, it is also betting heavily on low-carbon technology, aiming to install 175 gigawatts (GW) of solar, wind and other renewables by 2022.

South Asia and parts of the developing world still want to build coal plants but they are finding it much harder to obtain funding.
 
The World Bank and the big multilateral development agencies will not finance or guarantee new coal plants, or will only do so under stringent conditions. The Norwegian pension fund – the world’s biggest wealth fund – is divesting from coal. So is the Church of England. Private banks are becoming wary of the sector, given the tail-risk of class-action “climate lawsuits”.

China is cutting back for its own reasons, shutting down dirty home boilers to curb toxic levels of pollution in the big cities and to head off a middle class revolt.

It has installed 284 GW of hydro power over the past five years, mostly in the mountains of Sichuan and Yunnan. Solar and wind farms pepper the plains of North China. The country installed a record 23 GW of wind turbines in 2014, as much as the rest of the world put together.



The IEA did not address the issue that local governments in China have approved 155 more coal plants this year in a planning frenzy. Experts say this was a result of a new experiment in devolved powers that went horribly wrong.

Communist Party leaders in Beijing are almost certain to block these approvals, since the existing coal plants are running below 50pc capacity. The authorities have learned their bitter lesson from the glut in steel and shipbuilding plant.

In the West, coal faces a “long sunset”. Cheap shale gas has doomed the industry to a slow run-off in America. The IEA says no more coal plants will be built in the country, beyond those already under construction.

Carbon capture and storage (CCS) could come to the rescue, keeping coal viable as tougher climate rules from the COP21 accord in Paris ushers in a ratchet effect of rising – and spreading – carbon fees.

The IEA said the technology is “no longer a theoretical possibility” and is already working at several plants. But governments have failed to follow through. Britain has just cut off a £1bn funding prize for its two pilot projects.

The coal industry does not have long to reinvent itself as a low-carbon source of energy compatible with the Paris accords. “The window of opportunity is closing,” said the IEA.