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Analysis-China’s pledge to cut project finance is the ‘new normal’ for coal By Reuters


© Reuters. FILEPHOTO: An image of a leaf sitting on top of a coal pile in Youngstown Ohio (USA), September 30, 2020. REUTERS/Shannon Stapleton/File Photo

By Melanie Burton and Fransiska Nangoy

MELBOURNE/JAKARTA (Reuters) – Australia and Indonesia, the world’s biggest coal exporters, face an accelerated decline in global demand for their coal shipments after China said it would stop building coal-fired power plants overseas, analysts, environmental groups and industry officials said.

The Chinese President Xi Jinping made the announcement at Tuesday’s United Nations General Assembly. This led environmental activists to expect a significant impact on the major coal exporters.

As more power systems worldwide shift towards renewable energy, Beijing’s promise is the latest setback for Indonesian and Australian coal miners. However, Australia continues to advocate for coal as part of the global power mix.

Pandu Sjahrir of Indonesia Coal Miners Association said that “I think it is the new normal” when he was asked about whether miners have to accept the fact that world coal demand has peaked.

Australia and Indonesia are the world’s largest coal exporters. They account for nearly half of all global coal shipments.

According to the Statistical Review of World Energy 20,21 by BP (NYSE):, both countries have exported more coal than they use. Australia sends out over 75% of their coal while Indonesia exports around 60%.

(Key coal consumers, exporters and importers – https://fingfx.thomsonreuters.com/gfx/ce/zgpombjrbpd/KeyCoalConsumersExporters.png)

STEEPER DECLINE

Julien Vincent, executive director at environmental group Market Forces said: “Australia’s coal industry has been gambling on increasing coal-fired power generation in developing countries to replace declining long-term demand in places like Japan, South Korea and Taiwan.”

Market Forces’ analysis has shown that since 2015’s Paris Climate Agreement, global coal power generation pipelines have dropped by 76%.

Vincent believes that China’s declaration will accelerate this trend.

According to estimates made earlier in the year by Australia’s Department of Industry, coal exports will continue to rise for both countries. They are expected to reach 213 million tonnes (for Australia) and 442 millions tonnes (for Indonesia) by 2023.

Wood Mackenzie consultants stated that China’s commitment to not finance new coal-fired plant constructions abroad could put at risk the 29 gigawatts of Indonesian coal-fired units they had hoped to build in Indonesia after 2025. This may lead to higher international coal exports.

According to Rystad Energy, the global demand for coal will reach its peak at 10,000 TWh in 2024. The consultancy said that they will have to revise their forecast for a drop to 6,000 TWh in 2040 because of China’s decision to cease financing foreign coal plants.

Xi Nan, Rystad vice-president, stated that the drop in coal use from now onwards to 2025 will be somewhat steeper than originally anticipated.

(Global CO2 emissions vs coal use – https://fingfx.thomsonreuters.com/gfx/ce/lbpgngzgqvq/WorldCO2vsCoalUse.png)

ENERGY OPTIONS

Yancoal Australia Ltd, Australia’s largest pure-play coal producer and leading thermal coal exporter, said it expects continuing demand for coal across Asia for power generation and to make steel and concrete, and said its lenders and investors still see the company as a profitable business.

Yancoal’s spokesperson stated that Australia would continue to be a major source for premium quality metallurgical or thermal coal.

Whitehaven Coal and New Hope (OTC) Corp have declined to comment.

According to the Minerals Council of Australia, (MCA), governments in Asia and industries should intensify efforts to reduce emissions by using measures such as carbon capture and storage of existing plants.

Tania Constable, chief executive of MCA said that more of these measures are needed in order to reduce carbon emissions as well as provide countries with a wide range of energy options to support their development.



Mike Robinson
Mike covers the financial, utilities and biotechnology sectors for Street Register. He has been writing about investment and personal finance topics for almost 12 years. Mike has an MBA in Finance from Wake Forest University.