Coal demand burning out and prices may never recover: IEA

A new report is offering little optimism for the coal industry, which already is experiencing reduced demand, rock-bottom prices and environmental pressures.

The International Energy Agency (IEA) sharply lowered its five-year global coal demand growth forecast on Friday, mainly because of reduced consumption in China, where half of the world's coal is burned.

Coal may have reached "peak demand" in China, according to the IEA, since data shows a decline in Chinese coal demand occurred in 2014 and will continue to fall in 2015, which would be the first time since 1982 that demand fell for two consecutive years.

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"Prices continue to remain at low levels," states the report. "Persistent oversupply and shrinking imports in China and elsewhere suggest prices will remain under pressure through 2020."

Golden era over

The report even suggests the dramatic fall in the cost of solar and wind generation and the stronger anticipated global climate policies raise the question "whether coal prices will ever recover."

The global picture reflects similar struggles facing the Canadian coal industry. The market for metallurgical coal, which the majority is shipped to Asia to make steel, is in a cyclical downturn because of an oversupply. Thermal coal, which is used to generate electricity, is in a much tougher spot. 

Alberta burns more coal than the rest of Canada, but the provincial government has pledged to accelerate the decommissioning of coal-fired power plants. As part of its climate plan, Alberta will phase out all pollution created by burning coal and transition to renewable energy and natural gas generation by 2030.

Carbon capture and storage

Some industry members and politicians suggest a saving grace for coal fired power plants could be carbon capture and storage (CCS) technology, such as the facility operating in Saskatchewan. CCS helps reduce the amount of greenhouse gases emitted by the power plant.

The high cost of the facilities is one reason why CCS is not prevalent around the world.

"We suspect that thermal coal is in structural decline, despite the coal industry's current focus on HELE (high efficiency low emissions) and USC (ultra super critical) technologies," said a report this week by Citi Research. "We are dubious about the prospects for CCS."

Overall, the IEA lowered its global demand forecast downward by over 500 million tonnes of coal-equivalent (Mtce). The expectation is that coal demand will grow slightly through 2020, by an average of 0.8 per cent per year. Half of the growth will occur in India. 

Coal consumption is increasing in several countries — most notably in southeast Asia, such as Indonesia, Vietnam and the Philippines. Those countries are building new coal power plants to support their electricity systems.