COAL Medium-Term Market Report 2012 Market Trends and Projections to 2017 Please note that this PDF is subject to specific restrictions that limit its use and 2012 distribution. The terms and conditions are available online at http://www.iea.org/ termsandconditionsuseandcopyright/ OECD/IEA, © COAL Medium-Term Market Report 2012 The Medium-Term Coal Market Report 2012 provides IEA forecasts on coal markets for the coming five years as well as an in-depth analysis of recent developments in global coal demand, supply and trade. The annual report shows that while coal continues to be a growing source of primary energy worldwide, its future is increasingly linked to non-OECD countries, particularly China and India, and to the rise of natural gas. The international coal market is experiencing dynamic changes. In 2011, China alone accounted for more than three-quarters of incremental coal production, while domestic consumption was more than three times that of global trade. Low gas prices associated with the shale gas revolution caused a marked decrease in coal use in the United States, the world’s second-largest consumer. This led US thermal coal producers to seek other markets, which resulted in an oversupply of coal in Europe and a significant gas-to-coal switch. Meanwhile, China surpassed Japan as the largest importer of coal, and Indonesia overtook Australia as the world’s largest exporter on a tonnage basis. The report examines the pronounced role the Chinese and Indian economies will exert on the international coal trade through 2017. In the report’s Base Case Scenario, China accounts for over half of global consumption from 2014, and India surpasses the United States as the world’s second-largest consumer of coal in 2017. The report also offers a Chinese Slowdown Case, a hypothetical scenario which shows that even if Chinese GDP growth slowed to 4.6% average over the period, the country’s coal consumption would continue to grow. Market Trends and Projections to 2017 2012 €100 (61 2012 21 1P1) ISBN: 978 92 64 17795 6 OECD/IEA, © COAL Medium-Term Market Report 2012 Market Trends and Projections to 2017 2012 OECD/IEA, © 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, 2012 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 2012 is subject to specific restrictions that limit its use and distribution. The European Commission The terms and conditions are available online at also participates in http://www.iea.org/termsandconditionsuseandcopyright/ the work of the IEA. OECD/IEA, © FOREWORD FOREWORD In December last year, the IEA (International Energy Agency) launched the Medium-Term Coal Market Report 2011 (MCMR 2011) as the first of a new annual series. I am now delighted to present its successor, MCMR 2012. In the intervening year, the IEA has published the Medium-Term Gas Market Report 2012, the Medium-Term Renewable Energy Market Report 2012 and the Medium- Term Oil Market Report 2012. Together, this series offers a consistent and comprehensive market outlook across the fuel spectrum, contributing to transparency and supporting policy makers and stakeholders in their decision making. Coal is a staple energy source, particularly for power generation. This year’s report shows that while coal is here to stay, the global market is particularly susceptible to policy decisions, infrastructure issues, and substitutes in just a few of the largest consumers and producers. Despite concerns over sustainability, the rise of emerging markets has relentlessly driven coal demand higher over the past decades. Whereas climate policy and macroeconomic slow-down were expected to slow that increase, it took the shale gas glut in the United States to curtail coal demand growth there. Yet thanks to more regional integration in coal markets, European coal prices have been more responsive than gas prices, bringing coal back to Europe. This report contains a special focus on production and consumption in the United States as one of the driving forces of coal markets globally. The other major driving market is of course China. There has been a lot of talk about the effects of a potential economic slow-down there, and of the policy measures included in the Five-Year Plan unveiled in 2011 – particularly increased efficiency, energy diversification, and a cap on coal consumption. This report contains a special focus on China, with an in-depth study of coal non-power use and domestic coal transportation. It also contains a sensitivity analysis, the so-called Chinese Slow-Down Case, which shows that even in the event of a hypothetical rebalancing and slow-down of the Chinese economy, global coal demand keeps growing. Coal is a family of products rather than a single commodity. The report therefore contains a comprehensive analysis of price evolution for different coal types, qualities and regional markets – as well as an analysis of impacts on other markets. Coal accounts for over 40% of global electricity generation, making coal prices a key determinant of electricity prices and developments in the power market. The report also contains a comprehensive analysis of current and planned exporting capacity, showing that while coal may be relatively safe with regard to geopolitical instability, sources of export are set to remain particularly concentrated. Most of the plans to expand export capacities are in the current top exporters, with the notable exception of Mozambique. Coal is also particularly affected by the global climate change agenda – which has been recently marked by disappointing inaction. Amid economic turmoil and the continuing threat of recession, climate change concerns have taken a back seat. Meanwhile, carbon capture and storage (CCS) technologies are not taking off as once expected. The result is that, without serious constraints on coal consumption by climate change policies in most places, demand and CO2 will continue to grow. Yet without progress in CCS, coal is at risk to a potential climate policy backlash and rising concerns over emissions. MEDIUM-TERM COAL MARKET REPORT 2012 3 2012 OECD/IEA, © FOREWORD For all of its positive and negative qualities, coal will remain a key primary energy source and an important part of fostering economic growth and alleviating energy poverty. The MCMR 2012 report provides clear insights into these dynamic developments, enabling policy makers and others to anticipate and prepare for the challenges facing global coal markets. In producing this report, the IEA received inputs from the Coal Industry Advisory Board (CIAB). The CIAB is an invaluable source of expertise on coal for the IEA Secretariat, composed of high-level executives from companies and organisations involved in all stages of the coal chain. The report is published under my authority as Executive Director of the IEA and may not represent the views of its individual member countries. Maria van der Hoeven 4 MEDIUM-TERM COAL MARKET REPORT 2012 2012 OECD/IEA, © ACKNOWLEDGEMENTS ACKNOWLEDGEMENTS The Medium‐Term Coal Market Report 2012 was prepared by the Gas, Coal and Power Division (GCP) of the IEA, headed by László Varró. The project was managed and co‐ordinated by Carlos Fernández Alvarez. Timo Panke, Johannes Trüby and Carlos Fernández Alvarez are the principle authors of this report. Ming Wan is the main author of the China Chapter, and Didier Houssin and Keisuke Sadamori provided expert guidance and advice. We are grateful for the data provided by the IEA Energy Data Centre, which are the cornerstone of this report. Valuable inputs were provided by Keith Burnard, Anne‐Sophie Corbeau, Alexander Antonyuk, Pawel Olejarnik, Ian Cronshaw, Jonathan Sinton and Dennis Best.