China, India to boost annual coal demand by 1.2bn tonnes by 2017

18 December 2012 13:40 Source:ICIS

Coal demand will increase by more than 500,000 tonnes every day for the next five years, with coal coming close to surpassing oil as the world's top energy source, International Energy Agency (IEA) said on Tuesday.

Despite the focus on climate policy, the world will use around 1.2bn tonnes/year more coal by 2017 compared with current consumption, with China and India representing 100% of the global increase in coal demand. A large decline in the US will compensate for growth in the rest of the world.

"Coal's share of the global energy mix continues to grow each year, and if no changes are made to current policies, coal will catch oil within a decade," IEA executive director Maria van der Hoeven said in a statement.

By 2017, India will become the second-largest coal consumer and largest importer in the world. Together with China, the two countries will import more than one-third of total global coal imports, and will represent two-thirds of global coal demand. Indonesia will be the world's key coal exporter.

European outlook

European coal demand is expected to peak in 2013, with coal burn in the power sector in 2017 expected to be only 4% higher than it was in 2011. Coal consumption rose in 2012 because of expensive natural gas and low carbon prices, which has made coal-fired generation very profitable.

For example, ICIS data show the UK January '13 clean dark spread out-turned at £22.31/MWh on Monday, compared with the equivalent clean spark spread at £1.89/MWh. The difference was even more pronounced in Germany, where the front-month clean dark spread was calculated at €13.16/MWh on Monday, while the clean spark spread out-turned at minus €10.72/MWh.

In the absence of high carbon prices, coal would now only face competition from low gas prices, as observed in the US over the past year.

"The US experience suggests that a more efficient gas market, marked by flexible pricing and fuelled by indigenous unconventional resources that are produced sustainably, can reduce coal use, CO2 emissions and consumers' electricity bills, without harming energy security," van der Hoeven said.

However, she added that the forecasts are based on the assumption that widespread and reliable carbon capture and storage (CCS) technology would not be available in the next five years: "CCS technologies are not taking off as once expected, which means CO2 emissions will keep growing substantially. Without progress in CCS, and if other countries cannot replicate the US experience and reduce coal demand, coal faces the risk of a potential climate-policy backlash." MV

By Manca Vitorino