China to remain hungry for thermal coal

CHINA’S strong appetite for thermal coal is not going anywhere, a report from Woods Mackenzie has found.
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Staff Reporter

According to the energy and metals analyst’s projection, despite efforts to limit coal consumption and seek alternative options, China’s demand for the fuel will balloon to about 7 billion tonnes a year by 2030, almost double existing demand.

"It is very unlikely that demand for thermal coal in China will peak before 2030," Wood Mackenzie Beijing-based president of global markets William Durbin said in a statement.

"Why? Because China’s aggressive investment program for nuclear, natural gas and renewables capacity is centred in the coastal region while coal-fired capacity grows in the central and western provinces.

Durbin said a plethora of coal-intensive conversion projects being built or planned also were adding to demand.

The report titled China: The Illusion of Peak Coal says that even though the country’s energy efficiency is improving at a rapid pace, demand for thermal coal is set to sky rocket regardless.

"Wood Mackenzie’s analysis already takes into account a rapid improvement in energy efficiency the likes of which have not been seen,” Durbin said.

“We expect power demand per unit of GDP to fall by half in just 17 years, an extraordinary achievement for an economy experiencing such sustained growth.

“In spite of this efficiency improvement, power demand is still set to nearly triple to 15,000 terawatt hours by 2030. Indeed, if expected efficiency improvements do not materialise, then in the absence of alternatives, coal demand could increase further.”

Durbin said demand would grow organically but also would be boosted by an investment in government-approved coal conversion projects, such as coal to gas technologies.

“Total Chinese industrial demand for thermal coal is expected to grow from 1.5 to nearly 2.1 billion tonnes per annum by 2030,” he said.

“In comparison, the US, the world’s second largest domestic market for coal, consumes only 1Btpa in total.”

If a cap on coal consumption in China was imposed, it would come at a cost to a number of provincial economies that relied on coal investment, Durbin warned.

While a move to natural gas has been popular in the US, he said the high costs of LNG, the modest investment designated to it and the very slow development of domestic reserves would lead to the country’s natural gas supplies struggling to meet demand.

“Our analysis already assumes an intensive investment program in unconventionals post-2020,” Durbin said.

“To ramp up shale gas developments and production faster to displace coal will require a near-doubling of investment. We expect coal to hold its cost advantage until shale gas breakeven costs fall by 40-50 per cent.”

Ultra High Voltage electricity transmission lines also are unlikely to dent the country’s demand for coal, but rather just relocate it.

"Government mandates to improve the environment by reducing coal use will require steep investments in alternatives, the use of emission control technology or reduce economic growth rate targets further – options which are not currently happening,” Durbin said.

“What is noteworthy, however, is that there is greater potential for further demand growth beyond our expectations. Failure to meet an aggressive non-coal power capacity build, investment in more efficient technologies and the expansion of the UHV network will increase the dependence on and use of coal.

“In the end, China's thermal coal demand will see persistent growth until 2030, rendering peak coal an illusion.”

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