Bloomberg News

Coal 4-Year Low Lures Utilities Ignoring Climate: Energy Markets

October 11, 2013

Pieces of Coal

Pieces of coal sit on a sack at a coal wholesale market in Mumbai. Coal is the source for about three-quarters of capacity being built in Southeast Asia, where energy demand is forecast to almost double in the next two decades as coal consumption triples, the International Energy Agency said in an Oct. 2 report. Photographer: Dhiraj Singh/Bloomberg

Coal is poised to become the most-used fuel for power generators through the rest of this decade, undermining targets for cutting greenhouse gases even as prices rebound from a four-year low.

About 434 gigawatts of coal-power capacity will be added globally by 2020, compared with 241 gigawatts for gas and 92 gigawatts of nuclear generation, according to Bloomberg New Energy Finance. Though a Bloomberg survey shows prices may rise 15 percent by 2015, it won’t be enough to stem demand in Asia and Europe, Singapore-based UOB Kay Hian Ltd. says.

As more than 200 ministers and executives gather in South Korea for next week’s World Energy Congress, the biggest economies are facing a resurgence in demand for coal, a fuel that emits twice as much pollution as natural gas, with international climate talks looming in Warsaw next month. The world now has the highest concentrations of greenhouse gases in at least 800,000 years, according to the United Nations.

“Many people forgot about coal,” Maria Van der Hoeven, executive director of the International Energy Agency, said in an Oct. 2 interview in Bangkok. “Coal is really emerging as a fuel of choice because of its abundance and affordability.”

The price of Asian benchmark coal at the Australian port of Newcastle fell to $76.10 a metric ton on Aug. 9, the lowest since November 2009, and traded at $79.10 on Oct. 4, according to McCloskey Group Ltd., a U.K.-based researcher. European coal for 2014 dropped to an all-time low of $81.75 a ton yesterday, according to data compiled by Bloomberg.

Coal Stations

Utilities including Huaneng Power International Inc. (902) in Beijing and NTPC Ltd. (NTPC) in New Delhi are among companies in 59 nations planning to build 1,401 gigawatts of new coal-fired stations, according to the World Resources Institute. China and India account for 76 percent of planned new generation, equal to the entire current capacity of the U.S., according to the institute.

Newcastle coal prices will rise to $91 a ton in 2015 and $95 in 2016, according to the median of analyst forecasts compiled by Bloomberg Oct. 7.

“Coal prices will be in an upward trend in the long term, supported by rising demand globally,” Helen Lau, an analyst with UOB Kay Hian, said in an Oct. 9 interview. “Coal will remain economically competitive as a stable source of power.”

Shale Revolution

Coal-fired capacity worldwide will have increased by 285 gigawatts in the five years ending in 2015, according to Bloomberg New Energy Finance. That’s more than India’s maximum current output and compares with 111 gigawatts for natural gas and 20 gigawatts for nuclear power.

New technology that cracks open shale rock has unleashed record amounts of natural gas in the U.S., freeing up coal for export to Europe. Columbus, Ohio-based American Electric Power Co. (AEP:US), the largest coal consumer in the U.S., predicts the fuel will account for less than half its generation capacity in 2016, down from 60 percent this year.

The boom in U.S. gas production, which helped the nation surpass Russia as the world’s biggest producer, drove futures prices in New York to a 10-year low of $1.902 per million British thermal units last year. The fuel, averaging $3.686 per million Btu this year, will climb above $4 by the end of 2013 as demand rises, according to Bank of America (BAC:US) Corp.

The U.S. shale-gas revolution can’t be replicated elsewhere, according to Van der Hoeven. Geological and logistical constraints mean China’s output won’t be significant before 2020, she said.

Congress Attendees

The World Energy Congress, a triennial gathering that starts Oct. 14 in Daegu, South Korea, will be attended by government representatives including Alexander Novak, Russia’s energy minister, and Jero Wacik, Indonesia’s minister for energy and mineral resources. Russia holds the world’s second-biggest gas reserves. Indonesia is the largest coal exporter.

Coal is the source for about three-quarters of capacity being built in Southeast Asia, where energy demand is forecast to almost double in the next two decades as coal consumption triples, the IEA said in an Oct. 2 report.

The 10 members of Association of Southeast Asian Nations will get 49 percent of their power from coal by 2035, up from 31 percent in 2011, while the share from gas will drop to 28 percent from 44 percent, it said.

Coal will be at least 30 percent cheaper than natural gas for electricity generators in Southeast Asia, assuming a price of $80 a ton versus gas at $10 per million Btu, the IEA said.

Coal Abundance

“Emerging economies will continue to drive demand growth in thermal coal for many years to come,” National Australia Bank (NAB) said Oct. 7. “Coal’s abundance and affordability in the region give the fuel a clear advantage, and price differentials currently favor coal by a significant margin.”

Indonesia plans to almost double output by 2035, the IEA said. Australia aims to triple export capacity to 900 million tons a year, according to the World Resources Institute.

China, the world’s biggest energy user and consumer of coal, has introduced carbon pricing in seven of its biggest manufacturing areas to help cut emissions even as it drives economic growth. It may finally reverse decades of rising emissions by 2027 if it can use more nuclear and renewable energy to challenge coal, New Energy Finance projects.

“Across Asia, where coal is so much cheaper than gas, especially without a carbon price, there’s no market-based reason for companies to build anything other than coal,” said William Pearson, the London-based director for global energy and natural resources at the Eurasia Group. “That’s going to be a big risk to climate change targets.”

Envoys from about 200 nations will meet next month in Warsaw to work toward a global agreement by 2015 for emission reductions by 2020. The UN target is to limit the increase in the world’s average temperature to 2 degrees celsius (3.6 Fahrenheit) above pre-industrial levels.

Replacing Nuclear

In Japan, demand for coal is rising as a replacement for nuclear reactors, closed in the wake of the Fukushima Dai-Ichi disaster of 2011. Kansai Electric Power Co. (9503)’s Ohi No. 3 and No. 4 units were shut for safety checks last month, leaving the nation without atomic power for the first time since July 2012.

Tokyo Electric, Japan’s biggest power utility by generation capacity, used 711,000 tons of coal last month, almost quadruple the 184,000 tons of a year earlier, the company said Oct. 8.

Record-low coal and carbon allowance prices in Europe are encouraging utilities to burn fuels that pollute more. Germany, the region’s biggest economy, may produce higher greenhouse-gas emissions this year, following a 1.5 percent gain last year, according to the DIW economic institute, which advises the government. That will be the nation’s first back-to-back increase since at least the 1980s, after Chancellor Angela Merkel’s decision to shut nuclear plants led utilities to burn more coal because of lower costs.

Climate Challenge

Utilities led by RWE AG (RWE) and EON SE boosted hard coal imports 25 percent in the first quarter to 10 million tons, the nation’s Coal Importers Association said.

Utilities in Germany have earned an average 8.4 euros per megawatt hour of electricity produced from coal this year compared with a 18.3 euro loss for power from gas, according Bloomberg Industries data.

“That’s going to be the big challenge for climate,” Eurasia’s Pearson said. “For China, Korea, Japan, India and also in Germany, coal looks pretty good over the next decade just because there’s going to be a clear cost advantage.”

To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Winnie Zhu in Singapore at wzhu4@bloomberg.net

To contact the editor responsible for this story: Mike Anderson at manderson34@bloomberg.net To contact the editors responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net;


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