Low coal prices a big lure for utilities
About 434 gigawatts of coal-power capacity will be added globally by 2020, compared with 241 gigawatts for gas and 92 gigawatts of nuclear generation, according to Bloomberg New Energy Finance. Though a Bloomberg survey shows prices may rise 15 percent by 2015, it won't be enough to stem demand in Asia and Europe, Singapore-based UOB Kay Hian says.
As more than 200 ministers and executives gather in South Korea for next week's World Energy Congress, the biggest economies are facing a resurgence in demand for coal, a fuel that emits twice as much pollution as natural gas, with international climate talks looming in Warsaw, Poland, next month. The world now has the highest concentrations of greenhouse gases in at least 800,000 years, according to the United Nations.
"Many people forgot about coal," Maria Van der Hoeven, executive director of the International Energy Agency, said in Bangkok. "Coal is really emerging as a fuel of choice because of its abundance and affordability."
The price of Asian benchmark coal at the Australian port of Newcastle fell to $76.10 a metric ton on Wednesday, the lowest since November 2009, and traded at $79.10 on Oct. 4, according to McCloskey Group, a U.K.-based researcher. European coal for 2014 dropped to an all-time low of $80.85 a ton Friday and traded at $82 at 11:48 a.m. London time, according to data compiled by Bloomberg.
Utilities including Huaneng Power in Beijing and NTPC in New Delhi are among companies in 59 nations planning to build 1,401 gigawatts of new coal-fired stations, according to the World Resources Institute. China and India account for 76 percent of planned new generation, equal to the entire current capacity of the U.S., according to the institute.
Newcastle coal prices will rise to $91 a ton in 2015 and $95 in 2016, according to the median of analyst forecasts compiled by Bloomberg Oct. 7.
"Coal prices will be in an upward trend in the long term, supported by rising demand globally," said Helen Lau, an analyst with UOB Kay Hian. "Coal will remain economically competitive as a stable source of power."
New technology that cracks open shale rock has unleashed record amounts of natural gas in the U.S., freeing up coal for export to Europe. Columbus, Ohio-based American Electric Power, the largest coal consumer in the U.S., predicts the fuel will account for less than half its generation capacity in 2016, down from 60 percent this year.
The boom in U.S. gas production, which helped the nation surpass Russia as the world's biggest producer, drove futures prices in New York to a 10-year low of $1.902 per million British thermal units last year. The fuel, averaging $3.686 per million Btu this year, will climb above $4 by the end of 2013 as demand rises, according to Bank of America.
The U.S. shale-gas revolution can't be replicated elsewhere, according to Van der Hoeven. Geological and logistical constraints mean China's output won't be significant before 2020, she said.
The World Energy Congress, a triennial gathering that starts Oct. 14 in Daegu, South Korea, will be attended by government representatives including Alexander Novak, Russia's energy minister, and Jero Wacik, Indonesia's minister for energy and mineral resources. Russia holds the world's second-biggest gas reserves. Indonesia is the largest coal exporter.
Coal is the source for about three-quarters of capacity being built in Southeast Asia, where energy demand is forecast to almost double in the next two decades as coal consumption triples, the IEA said in an Oct. 2 report.
The 10 members of Association of Southeast Asian Nations will get 49 percent of their power from coal by 2035, up from 31 percent in 2011, while the share from gas will drop to 28 percent from 44 percent, it said.
Coal will be at least 30 percent cheaper than natural gas for electricity generators in Southeast Asia, assuming a price of $80 a ton versus gas at $10 per million Btu, the IEA said.
"Emerging economies will continue to drive demand growth in thermal coal for many years to come," National Australia Bank said Oct. 7. "Coal's abundance and affordability in the region give the fuel a clear advantage, and price differentials currently favor coal by a significant margin."
Indonesia plans to almost double output by 2035, the IEA said. Australia aims to triple export capacity to 900 million tons a year, according to the World Resources Institute.
China, the world's biggest energy user and consumer of coal, has introduced carbon pricing in seven of its biggest manufacturing areas to help cut emissions even as it drives economic growth. It may finally reverse decades of rising emissions by 2027 if it can use more nuclear and renewable energy to challenge coal, New Energy Finance projects.
"Across Asia, where coal is so much cheaper than gas, especially without a carbon price, there's no market-based reason for companies to build anything other than coal," said William Pearson, the London-based director for global energy and natural resources at the Eurasia Group. "That's going to be a big risk to climate change targets."
Envoys from about 200 nations will meet next month in Warsaw to work toward a global agreement by 2015 for emission reductions by 2020. The UN target is to limit the increase in the world's average temperature to 2 degrees celsius above pre-industrial levels.
In Japan, demand for coal is rising as a replacement for nuclear reactors, closed in the wake of the Fukushima Dai-Ichi disaster of 2011. Kansai Electric Power's Ohi No. 3 and No. 4 units were shut for safety checks last month, leaving the nation without atomic power for the first time since July 2012.
Tokyo Electric, Japan's biggest power utility by generation capacity, used 711,000 tons of coal last month, almost quadruple the 184,000 tons a year earlier, the company said Tuesday.
Japanese utilities have cut back purchases of crude oil as "economically attractive" coal comes back into the mix, the IEA said Friday in its monthly report. "Power generation from coal was capacity-constrained in the aftermath of the Fukushima earthquake, but since then, several coal power plants damaged in the earthquake have been repaired and resumed operations," according to the report.
Record-low coal and carbon allowance prices in Europe are encouraging utilities to burn fuels that pollute more. Germany, the region's biggest economy, may produce higher greenhouse-gas emissions this year, following a 1.5 percent gain last year, according to the DIW economic institute, which advises the government. That will be the nation's first back-to-back increase since at least the 1980s, after Chancellor Angela Merkel's decision to shut nuclear plants led utilities to burn more coal because of lower costs.
Utilities led by RWE and EON boosted hard coal imports 25 percent in the first quarter to 10 million tons, the nation's Coal Importers Association said.
Utilities in Germany have earned an average 8.4 euros per megawatt hour of electricity produced from coal this year compared with a 18.3 euro loss for power from gas, according Bloomberg Industries data.
"That's going to be the big challenge for climate," Eurasia's Pearson said. "For China, Korea, Japan, India and also in Germany, coal looks pretty good over the next decade just because there's going to be a clear cost advantage."
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