Global coal supply may not cover demand in the coming years

Global demand for thermal coal is expected to increase in the coming years, but whether there will be a supply to meet its needs remains questionable, group members told CERAWeek from IHS Markit.

The main problem is the lack of investment in new field development projects for a number of reasons, including environmental policy (decarbonization), reduced liquidity in the derivatives markets and a lack of capital.

"Decarbonization policies in Europe and the US are accelerating," said US expert John Hanekamp, ​​a US thermal coal consultant. “As these markets shrink and we see less and less liquidity, we will lose the ability to sell on time, which gives producers what we missed ... a fixed-term contract against which they can capitalize their mine. "

Hanekamp noted the recent decision by the Dutch authorities to close the 630 MW Hemweg 8 coal terminal in Amsterdam four years ahead of schedule, reflecting a positive trend in coal demand in the West.

“I see a problem in Europe with a lot of dead capital,” said Hanekamp. “… So we are taking excellently performing assets, closing them down and expanding the use of renewable energy sources.”

In 2012, the US exported 29.5 million tonnes of thermal coal to Europe, led by the UK at 8.7 million tonnes, according to the US Census. In 2018, the US exported 14.5 million tonnes to Europe, led by the Netherlands, 5.6 million tonnes, while UK imports fell to 2.7 million tonnes.

The International Energy Coal Agency predicted in December that global thermal coal demand will remain stable at around 5.4 billion tonnes over the next five years, as growth in India and Southeast Asia offset declines in Europe and North America. ,

Porco noted that coal companies are increasingly distributing profits to shareholders, making it unlikely that "we will see additional capital for new projects."

The United States has done well in finding new markets in Asia, especially in India, which imported 10.5 million tonnes of thermal coal in 2018, up from 1.8 million tonnes in 2012, Porco said.

Increased demand from Asia should also drive Colombian and Russian coal supplies to the Pacific, although Hanekamp is not convinced that "these spreads will be favorable unless someone is willing to pay for quality."

“In the end, it all comes down to cost,” Hanekamp said. "Colombia is quite difficult to beat in terms of cost, but some mines in the Illinois and Northern Appalachian Basin can do it."