Peak Coal, They Said: Questions Persist about Fossil Fuel Scarcity, and the Economics of Natural Resource Extraction

Are you excited at the prospect that Coal’s Second Coming, largely driven by China over the past 20 years, has now come to a halt? You should be. Coal retirements in the United States have been aggressive, and China is increasingly meeting marginal growth for electricity through solar, wind, and hydropower. Maybe future coal growth is now, and forever, blunted. The trickier analytical problem this presents, however, is the lingering idea that coal consumption should have peaked already. You see, starting about 100 years ago, global coal consumption growth slowed materially. The reason? A new energy source, coming up from very low consumption levels, started to appear on the scene: oil. | see: Global Oil and Coal Consumption 1899-1949 in Mtoe

Global Oil and Coal Consumption 1899-1949 in Mtoe

Starting in the 1930s—and especially during the acceleration brought on by World War II—20th Century oil started competing with 19th century coal. Thus, one energy era ended and another began. By the early 1960’s, global oil consumption triumphantly soared—high enough to cross over coal, establishing itself successfully as the master commodity. | see: Global Oil and Coal Consumption 1950-1999 in Mtoe

Global Oil and Coal Consumption 1950-1999 in Mtoe

While coal consumption continued to grow, its advance shifted into low gear. Global coal consumption reached the 750 Mtoe level for the first time in 1912. It would take another 60 years, to the year 1972, to (securely) double to 1500 Mtoe. In that same time period, global oil consumption grew 60X! Oil consumption in 1912 was a mere 43 Mtoe, but had exploded to 2562 Mtoe by 1972. Master commodity, indeed.

Unfortunately, the slowdown in global coal consumption during the 20th century had an unexpected outcome: coal became cheap, and a great deal of coal resources, untapped for decades, were left in the ground—available to extract. Coal’s losses to oil would eventually convert to coal’s advantage, when it came time for the Non-OECD, and China especially, to industrialize.

Starting in 1980, global coal consumption started to lift again. First to 2250 Mtoe by 1990. Then 2500 Mtoe by 2002. Then 3500 by 2008. Led by China, global coal consumption made such a large, new advance that as of 2014, it was challenging oil once again, for top energy source in the world’s energy mix. As of the 2014, global coal consumption nearly reached 3900 Mtoe | see: Global Oil and Coal Consumption 2001-2014 in Mtoe

Global Oil and Coal Consumption 2001-2014 in Mtoe

That 19th century coal could make such a large comeback in the 21st century raises important questions about fossil fuel scarcity, and the economics of natural resource extraction. Two phenomenon that should be in the forefront of our thinking, in this regard, are worth citing.

First, technology has a habit of solving the problem of declining profitability in energy production. Geology initially drives increasing costs, creating production standstills. Then technology, working with a lag, offers solutions to the higher cost environment. We’ve witnessed this effect in coal, natural gas, and also oil.

Second, energy transitions discard one energy resource for another. But in doing so, the discarded energy resource falls enough in price to be utilized again. The age of biomass gave way in the late 1700’s to the age of coal. But today, biomass has returned as growth area, in energy consumption. The same is now true of coal.

Let’s speculate here: a core theme of is the current transition from liquid fossil fuels to the powergrid. This has clearly disrupted oil’s previous growth path, and already oil is cheaper. Moreover, there is every reason to be positive about the future electrification of transport, and even the willingness of countries like China and India to head off future oil-based transport growth, directing demand into trains, and electric vehicles.

But if the world is indeed successful at cutting off oil’s normal growth path, will the world simply rediscover oil a decade or two from now, at cheaper prices, with its very handy, energy-dense versatility?

–Gregor Macdonald

  • Gregor,
    I get the thinking. Please overlay this with the regulatory pressures and moral responsibility around moving away from fossil fuels indefinitely to slow the pace of global warming. Embed this into the above and the trajectory of both Oil and Coal point south.

  • Thanks for the comment, Mark.

    Am I particularly bullish on expansive new supplies of coal, natural gas, and oil in the future? Not really. I am super bullish on the economics and the infrastructural edge of solar power. I also take the view that OECD emissions have peaked, but, in the sense that the US and Europe now join Japan both in terms of growth and demographics. Also, growth globally is becoming less industrial. This will all drive a much, much slower growth rate in demand for fossil fuels.

    That said, going forward, I now understand concerns expressed by climate folks some years ago: their concerns were not that there was fossil fuel scarcity, but fossil fuel oversupply—and yes, at prices that economies could afford. I am surprised to say, that concern seems quite legitimate given the evidence.

    As I said, I’m conversely of the view that slow growth is here, and will be with us for a long time. Quality, not quantity, is what humans increasingly seek. I see huge gains ahead in efficiency, consumption changes, and energy transition. This may very well translate into early 21st century peaks in fossil fuel supply—as we look back, from say, the year 2030.

    However, I see the risk matrix very differently now.

    And so I remain super constructive and rationally bullish on the solar and wind revolution–and on the transition of global GDP to the powergrid. But I equally remain cautious about upticks in future fossil fuel consumption growth, given the historical tendency to see rebounds in FF use when prices fall far enough.

    These are, of course, just general remarks. And my views are much more quantified in my published work.

    All best,


  • Great views