As oil prices rose this decade, the developing economies reached hard for coal. BP Statistical Review puts out very good annual data, and their coal section tells the story. Every time I review the annual growth rate in Asian coal consumption, for example, it simply blows me away. This is why coal export facilities in Australia have been backed up and delayed for years. And of course, just like oil exporters who became oil importers over the past five years, China tipped from coal exporter to coal importer in the last twelve months.
Now, what’s encouraging is that rising coal prices were actually making financial models for renewable electricity more feasible. Google.org announced their project late last year, to create electricity at rates cheaper than coal, using renewables. But what happens now, if global coal prices fall?
As we can see in today’s price of oil, even the fear of a collapse of the global economy has not done much to move oil down. Oil is stubborn at 90.00. Though a bit below that today. This opens up the prospect that in a world of slower growth, with oil prices high and natural gas prices still high, that OECD demand for coal may start to rise again. After all, the BTUs in coal are still cheap. Industrial use of oil in the OECD has been falling for years, replaced by natural gas. But the OECD can always add back coal, in a time of economic stress. Recessions are a time when more idealistic goals, say, with regard to climate change, are shelved. The need for electrical power at cheaper rates will trump the global warming issue.
Meanwhile, a world of slower global growth and still elevated oil prices will do nothing to dampen coal demand in emerging Asia. In fact, it could further aggravate Asia’s unmet demand for coal. Do you see where I am going, with this? A global recession could drop incomes down to levels where 90.00 dollar oil is still way too high. In that context, the demand for coal could broaden. The decade-long reach for coal among poorer nations, trying to cope with higher oil prices, may be a reaction that widens out to include developed nations. While this would put renewables back on the table, in economic terms, it could also make for a much dirtier world in the meantime. A dismal world of coal, indeed.
-Gregor
