After Great Pain, a Formal Feeling Comes for Coal

The blog, highly active from 2008-2013, has largely been dormant during the time over the past few years as I’ve pursued other opportunities in journalism. However, in 2016 postings will appear again several times per month as addressable issues arise in our ongoing energy transition. My monthly publication–expanded with new writers and features in 2016–will be also sounding out similar themes.  More specifically, the rate at which the global energy system is suppressing, or failing to suppress, the growth of fossil fuel consumption: that is the question now in need of constant monitoring.

To understand coal’s unusual position in the global energy system today it is necessary to hold two seemingly incompatible views in the mind, at the same time. The first is that coal is now fully resurrected as the equal of crude oil, in the energy content it provides to the industrial economy. That this happened so quickly, and that it it was doubted so consistently, is itself astonishing. But just as with the Emily Dickinson poem, from which this post robs its title, the effects of coal’s return are indeed those of a sudden collision. Only now, and stunned, have we started to process the scale of coal’s second coming.

Which leads us to the second, difficult-to-accept notion: global coal growth on a net basis has now mostly halted. No longer advancing, but as important, not declining much either, the world is now stuck with a newly embedded coal dependency. This great lump of coal consumption will not easily be dislodged. Combined wind and solar deployment globally and cheap natural gas likely ensure the lump will not grow. However,  the new set of coal capacity additions slated for India, and sprinkled across the rest of the Non-OECD, equally ensure that even great coal-retirement waves, seen currently in the United States, will largely be negated.

Let’s briefly review the past decade, in which 19th Century coal rose once again to compete for the title of master commodity, against oil. In the chart below, we record the production of coal and the production of crude oil using an energy content unit known as Mtoe (million tonnes oil equivalent). Per the latest data (and yes, the revisions you may have heard so much about) the global production of oil and coal have equalled each other several times in the past several years, each dancing around 3900 Mtoe. At least as amazing, however, is that coal production nearly doubled from the start of the new millenium. |see: Global Oil Production vs Coal Production – Mtoe 2000-2014.

Crude Oil Production vs Coal Production - Mtoe 2000-2014

One might reasonably conclude the global coal industry was in decent shape, based on the above chart. But alas, the great leap forward and now the sudden stop have been devastating for the industry. Like the oil market, the coal market is almost tragically sensitive at the margin. Having now rapidly converted to zero growth, there’s absolutely no pricing pressure whatsoever. And none of the coming coal-fired capacity additions, or even the prospect of stabilization in the market, will lend much help to producers–many of which will be bankrupt by the time any (small) relief appears.

In truth, the global coal situation offers little good news for anyone. Not for those concerned with climate; not for those involved in coal production, or coal combustion. Much of the capacity in Asia, especially China, is quite young and will be steadily augmented, rather than supplanted, by deployment of wind and solar power. Indeed, it is now possible to be wildly bullish on the global growth of wind and solar power (and you should be) while still having to face up to the intractable problem of existing coal capacity. You can try to console yourself that capacity is in outright decline in the OECD. But you won’t get very far before realizing that across Asia, and in India, capacity expansions are coming. India offers a uniquely grim equation for further carbon output from coal, and, the dire fortunes of coal exporters, because India’s current production upswing will not only increase domestic coal combustion, but will lower the call on the global seaborne market.

For these reasons, the forecast is that after a four year decline–with 2015 being the steepest–global coal production is slated to stabilize again starting in 2018. New production, like new capacity, is at the ready to counter production and capacity declines elsewhere. | see: Annual Global Coal Production in Mtoe 2010-2014 | 2015-2020 Forecast.

Annual Global Coal Production in Mtoe 2010-2014 | 2015-2020 Forecast

The crucial question to ask: how far away precisely is the time when marginal additions to global power generation from renewables, combined with efficiency gains, will become so overwhelming that we actually start to eat away at existing coal capacity? In this framing, the news is slightly better than one might have expected just 24-36 months ago. With the global coal complex now halted earlier, the prospect for outright declines has come into sharper focus in the period between 2020 and 2025. But there’s a catch. And that comes from another player in the energy system, not yet discussed: natural gas. Will the coming age of ample seaborne LNG, from Australia and the US, mean that future coal retirements in the Non-OECD will be supplanted by natural gas, combined wind+solar, or both? If today’s changing energy mix in the US is a model, then combined wind+solar, working in tandem with natural gas, is the force that will begin to replace existing Non-OECD coal. In the future, that is.

Coming back to the present, coal-fired generation in the US is in the midst of a spectacular decline, and by estimates, coal’s share of US power generation will eventually fall by 50% from the highs of last decade. The signals in global coal production from Australia and Indonesia are crystal clear as well, as are the bankruptcies and liquidations. The world has permanently lost the US as a source of coal demand; and China’s demand growth too is headed towards zero. However, a good portion of this demand collapse has already expressed itself. The end of coal is not a moment, but a process. Or, as Emily Dickinson wrote: First – Chill – then Stupor – then the letting go –

–Gregor Macdonald

Further Reading:

China to Halt New Coal Mine Approvals Amid Pollution Fight, December 2015.

Inside the War on Coal, Michael Grunwald, Politico, May 2015.

Remaking the Map of US Energy Production – Part II of a V Part Series, Gregor Macdonald, Talking Points Memo, April 2015.

Further Listening: Bonnie Prince Billy, selection from his album The Letting Go.