IEA report sees no let-up in world’s appetite for coal over next five years

Global demand for coal will continue to expand aggressively over the next five years despite public calls in many countries for reducing reliance on the high-carbon fuel as a primary energy source, the International Energy Agency (IEA) said in a new annual publication, Medium-Term Coal Market Report 2011, released today.

Coal is already the single-largest source of electricity generation globally, and the report says the main reason for the projected increase in coal demand over the next five years is surging power generation in emerging economies. The report, which presents a comprehensive analysis of recent trends in coal demand, supply and trade, as well as an IEA outlook for coal market fundamentals for the coming five years, serves as a reminder of the significant challenges facing efforts to transform the global energy system to one that is sustainable, secure and low-carbon.

"For all of the talk about removing carbon from the energy system, the IEA projects average coal demand to grow by 600,000 tonnes every day over the next five years," IEA Executive Director Maria van der Hoeven said during the launch of the book. "Policy makers must be aware of this when designing strategies to enhance energy security while tackling climate change."

The report also raises concerns about the global implications of China’s massive appetite for coal, noting that events and decisions in China could have an outsized effect on coal prices – and thus electricity prices – around the world over the next five years.

To understand why, consider that China’s domestic coal market is more than three times the global coal trade: Only 15% of global coal demand is met through international trade, yet more than half of global coal demand during the outlook period is projected to come from China.

"What happens in China over the medium term may impact the prices for electricity that consumers everywhere will have to pay," said Ms. Van der Hoeven.

Other key findings of the report include:

• Growth in coal demand over the next five years will mostly occur in non-OECD countries, with China and India accounting for the majority
• Growing demand means poorer deposits will have to be exploited, which will likely lead to upward pressure on mining costs and therefore on coal prices
• Despite the rise of new exporting countries, like Mongolia and Mozambique, traditional exporters will meet the bulk of demand growth
• While coal has traditionally been considered a cheap and secure energy resource, this perception may be tested in the years ahead. Six countries account for more than 80% of global coal exports, and as demand surges markets could experience more of the infrastructure bottlenecks that in recent years caused coal prices to more than triple.

Medium-Term Coal Market Report 2011 is available for free download.