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2018 Global Outlook: Current & Future State of Coal

In 2017, the coal market saw a rebound as global coal prices rose steadily through the year and volumes of seaborne trade were higher. Even in the U.S., where coal jobs and coal production has been downward for years, 2017 marked a year of increased production, higher exports and even an up-tick in coal mining jobs.

Coal Rebound
While there is speculation of a coal resurgence, 2018 will return the energy industry to a stark reality: coal is moving out of the global generation mix. Last year was unique, not because it marked coal’s revitalization, but because it reminded us that coal will eventually be the fuel of last resort as the globe transitions toward other fuel sources. To understand the 2017 rebound, we need to first look back:

• In 2011, the coal market was growing with trade prices above $100/tonne.
• By 2016, the price of seaborne coal had fallen to an average of $57/tonne.
• A wave of coal companies in bankruptcy and an overall decline in coal production helped prices advance to an average of $84 in 2017.

In the U.S. last year, natural gas prices rose from 2016 lows, again lifting coal atop the generation mix. At the same time, increased Chinese imports and a demand up-tick from other East Asian countries helped lift the global price of coal. Exporters took advantage of the bullishness to expand mines and production.

Influencing Factors
On top of these market forces, recent headlines signaled coal’s resurgence. President Trump had all but killed the Obama-era Clean Power Plan (CPP), which would have resulted in dozens of coal plants coming offline. Meanwhile, Chinese plans for a national carbon market have been in the works for years, yet the planned 2017 start date had come and gone. But, 2017 may be an exception that proves the rule for global coal.

The delay in the Chinese carbon market should only be temporary. Even though little detail has been released regarding the structure and operation of the new scheme, the initial plan includes eight sectors: petrochemicals, chemicals, building materials, steel, ferrous metals, paper-making, power-generation and aviation. While questions about the project’s ambition and feasibility remain unanswered, China is still poised to announce the arrival of the world’s biggest carbon trading scheme this year.

We focus on China because the country consumes about half of the world’s coal and that consumption has declined each year since 2014. Additional factors in China should contribute to bearishness in the coal market, including a 58% quota for coal as part of the country’s energy mix in 2020–down from ~64% in 2015–and a general expansion of renewables within that generation mix.

Moving west to Europe, energy efficiency has halted power generation growth in recent years. On top of energy efficiency, political momentum toward a coal phase-out continues in many economies. At the UN climate summit in Bonn, the UK and Canada led 23 other countries in announcing a “Powering Past Coal Alliance”. (The Alliance may have more than 50 signatories by the 2018 UN climate summit.)

With regard to the US, expectations are that continued low prices in the natural gas market and further renewables growth will also structurally squeeze the coal sector.

To read more on the 5 other trends impacting 2018, download our Global Energy Outlook

Our Recommendations
What is most interesting about the aforementioned trends in coal is that these run counter to the overall trend in energy. Globally, we expect total energy demand to continue to rise for the next several decades while coal is set to play an ever-shrinking role. In 2018, we may well see many coal plants around the world generating their last kilowatt-hours.