Is there a future for coal?Framing the discussion

Rodrigo Echeverri, Research FellowMarch 20, 2015

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What is at stake for the stakeholders?Who cares?

GovernmentEnergy SecurityEconomic developmentRoyalties and taxesLocal contentEnergy efficiency

Policy

Markets

ProducersReturn on InvestmentRisk (Capital, country, regulatory, counterparty)

End-usersEconomic growthDemand for productFuel EconomicsNew technologies

GlobalEnvironmentSustainabilityCivil society

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• In real terms, coal prices have been remarkably stable over the last 25 years

• Gas is now 40% more expensive than it was in 1991

• Geopolitical risks are higher in gas than coal

Fuel price competitionHard to beat coal…

It is very hard to challenge coal on purely economic groundsSources: KAPSARC Analysis, BP, IEA, IHS McCloskey

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Modern Coal Market CyclesInternationally Traded Market

Coal prices are now where they were in 1991…

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Modern Coal Market CyclesInternationally Traded Market

But the global coal market has grown fivefold in the last 25 years…

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Modern Coal Market CyclesInternationally Traded Market

In the 1990’s, the structure of the modern international market was just emerging

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Modern Coal Market CyclesInternationally Traded Market

In the period 2001-2012 coal became a true global commodity, while policies were being enforced…

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Modern Coal Market CyclesInternationally Traded Market

Have policies started to catch up with coal?…

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Energy Demand Changes in ChinaPerhaps coal demand in China is responding to policy…

Sources: KAPSARC Analysis, NBS, IHS McCloskey

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Example of shifting EconomicsLCOE in coastal China in 2010

Sources: IEA, 2010; KAPSARC Analysis

Long-term coal demand is defined by the relative cost of fuels, as well as the position of emerging technologies…

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Sources: IEA, 2010; IRENA, 2015, KAPSARC Analysis

Fuel prices have fallen, but so has the price of renewable energies.It all makes electricity cheaper…

Example of shifting EconomicsLCOE in coastal China in 2015

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Sources: IEA, 2010; IRENA, 2015, KAPSARC Analysis

Policy implementation seems to become easier as the cost gap between alternatives closes…

Example of shifting Economics + PolicyLCOE in coastal China in 2015 + CO2 Sensitivity

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Sources: IEA, 2010; IRENA, 2015, KAPSARC Analysis

But it doesn’t, as fossil fuels usually adjust to compete…

Example of shifting Economics + PolicyLCOE in coastal China in 2015 + CO2 Sensitivity

?

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• Despite policy challenges, the seaborne coal market has grown fivefold over the last 25 years

• Policies designed to curb demand have underestimated the resilience of coal

• However, policies are getting tougher on coal

• In the future, Coal may have to compete harder, as the long-term impacts of policy exacerbate

Is there a future for coal?Conclusions