Coal exports tipped to fall if global economy stutters
World demand for the fossil fuel might never return to pre-pandemic levels, the International Energy Agency said.
Australian coal exports are forecast to fall this decade should there be prolonged delays in the global economy recovering from Covid-19 with world demand for the fossil fuel never returning to pre-pandemic levels under current policy targets, the International Energy Agency said.
Global trade for combined thermal and metallurgical coal volumes will fall 15 per cent in the decade through 2030 under existing policies with substantial declines in imports from three of Australia’s biggest coal buyers: China, Japan and South Korea.
Coal exporters should expect “significant swings” in the sector given heightened uncertainty over the direction of the economy and government policies amid the health pandemic.
Australian coal producers were hammered on Tuesday after a move by China to restrict coal imports back to 2017 levels with Australian suppliers forced to sell distressed shipments to other countries.
The level and trajectory of China’s imports “remain extremely difficult to predict,” the IEA said in its World Energy Outlook on Tuesday. “The government has made frequent market interventions, and quality tests, import quotas and other policy changes have shaken international markets in recent years.”
Japan and South Korea, two of the biggest buyers of Australian coal, are also transitioning their economies to cleaner fuels including renewable energy posing an additional threat over the next decade.
“Both Korea and Japan have policy aims to reduce reliance on coal, which pose a significant downside risk for imports in the coming years. This is one manifestation of the broader risk for coal trade that stems from the increasing pressure from a variety of stakeholders to curb fossil fuels in general and coal-fired power generation in particular.”
Under a delayed recovery from Covid where the economy only returns to its pre-crisis size in 2023, coal demand in China will fall 10 per cent by 2030 from 2019 levels.
“Consequently, even an export-oriented producer like Australia, one of the few countries whose coal exports are relatively resilient in the stated policies scenario, does not bring back exports to the pre-crisis levels.”
Coal use will decrease by 8 per cent this year, the biggest tumble since World War 2, while coal-fired power generation was set to fall by more than 10 per cent.
Longer-term, coal’s share in the 2040 global energy mix will fall below 20 per cent for the first time since the Industrial Revolution.
The IEA paints a downbeat picture for the broader energy sector with global demand set to drop by 5 per cent in 2020.
Critical shifts in the generation mix will also flow through in the next decade with renewables meeting 80 per cent of global electricity demand growth over the next decade with solar “the new king” of world power markets.
Oil also faces further ructions after a crash in demand earlier this year from Covid with the IEA predicting an end to growth for crude by 2030.
“The era of global oil demand growth will come to an end in the next decade,” IEA executive director Fatih Birol said. “But without a large shift in government policies, there is no sign of a rapid decline. Based on today’s policy settings, a global economic rebound would soon push oil demand back to pre-crisis levels.”
Gas demand in advanced economies will also go into slight decline by 2040 with no change in policies, the first projected fall forecast by the IEA in a finding that will raise questions for Australia as the world’s largest LNG exporter.
“This is the first World Energy Outlook in which the stated policy projections show gas demand in advanced economies going into slight decline by 2040,” Mr Birol said. “An uncertain economic recovery also raises questions about the future prospects of the record amount of new liquefied natural gas export facilities approved in 2019.”
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