Medium-Term Coal Market Report

COAL Medium-Term Market Report 2011 Market Trends and Projections to 2016 COAL Medium-Term Market Report 2011 Market Trends and Projections to 2016 INTERNATIONAL ENERGY AGENCY The International Energy Agency (IEA), an autonomous agency, was established in November 1974. Its primary mandate was – and is – two-fold: to promote energy security amongst its member countries through collective response to physical disruptions in oil supply, and provide authoritative research and analysis on ways to ensure reliable, affordable and clean energy for its 28 member countries and beyond. The IEA carries out a comprehensive programme of energy co-operation among its member countries, each of which is obliged to hold oil stocks equivalent to 90 days of its net imports. The Agency’s aims include the following objectives: n Secure member countries’ access to reliable and ample supplies of all forms of energy; in particular, through maintaining effective emergency response capabilities in case of oil supply disruptions. n Promote sustainable energy policies that spur economic growth and environmental protection in a global context – particularly in terms of reducing greenhouse-gas emissions that contribute to climate change. n Improve transparency of international markets through collection and analysis of energy data. n Support global collaboration on energy technology to secure future energy supplies and mitigate their environmental impact, including through improved energy efficiency and development and deployment of low-carbon technologies. n Find solutions to global energy challenges through engagement and dialogue with non-member countries, industry, international organisations and other stakeholders. IEA member countries: Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Japan Korea (Republic of) Luxembourg Netherlands New Zealand Norway Poland Portugal Slovak Republic © OECD/IEA, 2011 Spain International Energy Agency Sweden 9 rue de la Fédération Switzerland 75739 Paris Cedex 15, France Turkey www.iea.org United Kingdom Please note that this publication United States is subject to specific restrictions that limit its use and distribution. The European Commission The terms and conditions are available also participates in online at www.iea.org/about/copyright.asp the work of the IEA. FOREWORD For the first time, the IEA presents a publication aimed at analysing recent trends and developing medium‐term projections for coal markets around the world. Amid current debates on climate change and the deployment of renewables, public opinion has tended to see coal as an outdated source of energy. However, coal remains a crucial part of the energy mix, both in OECD countries, and increasingly in emerging economies around the world. Indeed, coal was the fastest growing source of energy this past decade, accounting for nearly half of the world’s primary energy demand. In recent years, global coal markets have been extremely active. Since commodity prices plummeted in 2008 amidst the aftermath of the global economic crisis and ensuing recession, coal prices have continued to steadily rise, and so, too, has coal price volatility. Increasingly, derivatives and financial products are being used in coal trading. Dynamics between European and Asian basins are changing, while the gap between thermal and metallurgical coal prices has widened dramatically. Reflecting these trends, the global coal market has become more interconnected and more dynamic. This report presents a comprehensive analysis on recent trends and provides a five‐year outlook of the world’s coal supply, demand and trade. Efforts have been made to factor in the strong uncertainties concerning economic growth. Coal dominates all other fuels in the Chinese energy mix and, globally, China's high share of coal production and consumption surpasses that of other countries for other fuels. To illustrate the country’s global influence, this report presents a low Chinese production scenario (LPS) and a high Chinese production scenario (HPS), where, through a simple sensitivity case, the reader may visualise the impact minor changes in China’s domestic market could potentially produce across the whole coal trade. While coal reserves are widely distributed among countries across the five continents, six countries account for the majority of the world’s exports. One of the main objectives of this report is to provide an in‐depth analysis on the development of the global coal chain among main exporting countries. Although healthy investments in mining developments and transport infrastructure are in the pipeline, factors such as project cancellation, weather‐related events or unforeseen disruptions have the ability to tighten the market in upcoming years. This book is the first of a new series of medium‐term market reports on oil, gas, coal and renewables, which the IEA will publish on an annual basis. Our aim is to provide greater transparency and deeper insights into recent and ongoing market developments and to look forward over the next five years. These reports will contribute to a better understanding of the workings of energy markets and enable both policy makers and industry to make well‐informed decisions that lead to a secure and stable energy future. This report is published under my authority as Executive Director of the IEA. Maria van der Hoeven 2011 OECD/IEA, MEDIUM‐TERM COAL MARKET REPORT 2011 3 © ACKNOWLEDGEMENTS The Medium‐Term Coal Market report has been prepared by the Gas, Coal and Power division of the International Energy Agency (IEA), headed by Laszlo Varro. The main authors are Johannes Trüby, Moritz Paulus and Carlos Fernández Alvarez, who is responsible for this publication. We are grateful for the data provided by the IEA Energy Statistics Division, which are the cornerstone of this report. Valuable inputs were provided by Keith Burnard, Pawel Olejarnik, Anne‐Sophie Corbeau, Dennis Volk and Ian Cronshaw. The IEA Communication and Information Office provided editorial guidance. Rebecca Gaghen, and her team, Muriel Custodio, Cheryl Haines, Andrew Johnston, Angela Gosmann and Bertrand Sadin made this publication possible. Geoffrey Morrison, from the IEA Clean Coal Centre, authored the boxes on Underground Coal Gasification and Coal to Liquids. Brian Ricketts, from Euracoal, also provided very useful suggestions. Our gratitude also goes to the Institute of Energy Economics at the University of Cologne (EWI) for sharing its breadth of coal expertise and coal market models. The IEA would especially like to thank the Coal Industry Advisory Board (CIAB) for sponsoring Moritz Paulus and Johannes Trüby on this report. Thanks must also go to the many CIAB associates who provided the IEA with invaluable data, information and advice. Veronika Kohler from the National Mining Association (NMA) in Washington D.C., Ian Hall from Anglo American, Samantha McCulloch from the Australian Coal Association, Supriatna Suhala from the Indonesian Coal Mining Association, Iwasaki Takenori from J‐Power, Oleg Pertsovskiy from SUEK, J. Gordon Stephens from Joy Global Inc., Maggi Rademacher from E.On Kraftwerke GmbH and Hans‐Wilhelm Schiffer from RWE AG, as well as Brian Heath, the CIAB Executive Co‐ordinator. 2011 OECD/IEA, 4 MEDIUM‐TERM COAL MARKET REPORT 2011 © TABLE OF CONTENTS FOREWORD ..................................................................................................................................... 3 ACKNOWLEDGEMENTS .................................................................................................................... 4 EXECUTIVE SUMMARY .................................................................................................................... 9 RECENT MARKET TRENDS .............................................................................................................. 13 Summary ............................................................................................................................................... 13 Demand ................................................................................................................................................. 13 OECD demand trends ....................................................................................................................... 15 Non‐OECD demand trends ............................................................................................................... 19 Supply .................................................................................................................................................... 22 OECD supply trends .......................................................................................................................... 22 Non‐OECD supply trends .................................................................................................................. 24 References ............................................................................................................................................. 25 MEDIUM‐TERM PROJECTIONS OF DEMAND AND SUPPLY .............................................................. 26 Summary ............................................................................................................................................... 26 Introduction ........................................................................................................................................... 26 Assumptions and methodology ............................................................................................................

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