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Why Coal Is Still King

Here in the US, we unsurprisingly tend to think of the energy markets in a US-centric fashion. Ask someone about the coal market, and they may describe coal as a fuel in decline. In fact, if you look at US coal consumption over the past ~50 years, that view would be supported.

US coal consumption chart

After growing steadily during the 1970s, 80s, and 90s, coal consumption in the US slowed, and then plunged 24 percent from 2007 to 2012. The reasons for the recent decline are well-documented, but the single biggest factor has been the electric power industry shifting from coal to cleaner-burning natural gas. Between 2008 and 2012 the fraction of electricity derived from burning natural gas in the US rose from 20 percent to 30 percent, while coal’s share declined from 48 percent to 37 percent. (Expect coal’s share to rebound slightly this year as a result of higher natural gas prices.)

But when it comes to the global coal market, top consumer China tells an entirely different story. Despite plummeting demand in the US, global coal consumption reached an all-time high in 2012, according to the BP Statistical Review of World Energy 2013. That was entirely because of increased coal burning in China, which trumped reduced use by the rest of the world.

US and China coal consumption chart

In 2012, global coal consumption increased by 101 million tons of oil equivalent (Mtoe). (The use of “oil equivalents” standardizes the different grades of coal and also allows easy comparisons with other energy sources.) To put that number into perspective, global oil consumption only increased in 2012 by 49 million tons of oil. Thus coal continues to be the fastest growing fossil fuel globally.

China’s increase alone was 112.5 Mtoe. India added another 27.7 Mtoe, but no other country experienced a consumption increase above 10 Mtoe. If not for China, the world would have seen coal consumption decrease by 11 Mtoe in 2012.

Chinese coal consumption passed that of the US in 1987, and the China has been the world’s top coal consumer ever since. In 2012, China consumed 50.2 percent of the world’s coal. The US was the second leading consumer at 11.7 percent of the world’s total, but Chinese and US coal consumption trends are headed in different directions.

Whereas China was the country that increased coal consumption the most in 2012, the US was the country that decreased coal consumption the most. US coal consumption fell by 58 Mtoe in 2012 to lead all countries.

And this is no single-year fluke. From 2007 to 2012, global coal consumption increased by 530 Mtoe. Coal consumption in China increased by 553 Mtoe during that period, which means that outside of China, world consumption of coal actually decreased over the past five years. The country leading that decrease was once again the US, which saw coal consumption decline by 136 Mtoe over the past five years. No other country in the world decreased consumption by more than 10 Mtoe over the same span. Canada was second with a 5-year decline in coal consumption of 9 Mtoe.

Rounding out the top five behind China and the US, the top global consumers of coal in 2012 were India (8 percent of the world’s total), Japan (3.3 percent), and Russia (2.5 percent). The Asia Pacific region used 68.9 percent of the world’s coal in 2012, and developing countries accounted for 71.8 percent of the world’s coal consumption.

The top two global coal producers in 2012 were the same as the top two consumers. China produced 47.5 percent of the world’s coal in 2012, followed by the US (13.4 percent), Australia (6.3 percent), Indonesia (6.2 percent), and India (6 percent). Asia Pacific produced 67.8 percent of the world’s coal, and developing countries accounted for 74.7 percent of the world’s coal production.

Interestingly, most of the countries that saw the sharpest percentage increases in coal consumption from 2011 to 2012 were in Europe. Portugal led all countries with a 31.4 percent increase in coal consumption in 2012, followed by Chile (25.1 percent increase), Spain (24.2 percent increase), the UK (24 percent increase), New Zealand (21.3 percent increase), and France (20.1 percent increase).

But other, mainly richer, European countries posted big percentage decreases in coal consumption over the last five years. Among them was Denmark (a 47.6 percent decrease), Finland (down 34.3 percent), Austria (-33.8 percent) and Sweden (-33.2 percent). Iran saw a 33 percent drop. The US is 8th on the list with a 24 percent decrease in coal consumption over the past five years.

Yet global coal consumption has increased by 16.6 percent over the past five years, because those sharply increasing their coal consumption —  like China and India — tend to use a lot of coal. The top percentage increases over the past five years were Argentina (157 percent increase, but still a small user overall), Chile (76.4 percent increase), Colombia (70.1 percent), Malaysia (62 percent) and Bangladesh (58.3 percent). Among the heaviest users of coal, China’s consumption climbed by 41.9 percent while India was right behind with a 41.8 percent increase.

In a nutshell, this describes the challenge in reducing global coal consumption. The bulk of coal is both produced and used by developing countries. Their production and consumption is growing, while that in developed countries is generally shrinking. Demand in Asia Pacific has more than doubled over the past decade despite the fact that the price for Asian coal more than tripled over that time span.

As for the US, we do have the world’s largest coal reserves. The US has 28 percent of the world’s coal reserves, enough for 257 years of US consumption at the current pace. Given declining US consumption, US coal producers have stepped up exports, and are seeking to expand coal export capacity from the Pacific Northwest to tap into Asia’s growing consumption.

However, there are many obstacles in place, both domestically and internationally. Domestically, environmentalists will pull out all the stops in trying to prevent this coal from being exported. Internationally, Southeast Asia is a very competitive market given the proximity of major coal exporters Australia and Indonesia. Australia is the world’s top coal exporter, with nearly 90 percent of its total exports destined for Japan, China or South Korea.

Globally, China will likely continue to dominate the coal markets, but India is poised to match China’s rapid consumption growth in coming years. In the US, on the other hand, coal’s days as a growth industry are probably over.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)


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