Global Demand for Coal Set to Return to All-Time High

PARIS — Despite slowing economic growth and market turbulence, the global demand for coal continues to rise and could, by the end of this year, match the record high the sector last saw a decade ago, the International Energy Agency says in a new report.

Based on current economic and market trends, the autonomous intergovernmental organization says, global coal consumption should rise by 0.7% in 2022 to 8 billion tons. 

If it does, the global total would match the annual record set in 2013. What’s more, the organization is forecasting that coal demand will likely increase further next year to a new all-time high.

But the authors of the report, the IEA’s Coal Market Update, also note that they’re making some big assumptions — among them, that the Chinese economy recovers as expected in the second half of the year. 

In fact, much of the report is the story of turmoil and uncertainty, which has important implications for many countries where coal remains a key fuel for electricity generation and a range of industrial processes. 

At the same time, the world’s continued burning of large amounts of coal is heightening climate concerns, as coal is the largest single source of energy-related CO2 emissions.

Worldwide coal consumption rebounded by about 6% in 2021 as the global economy recovered rapidly from the initial shock of the Covid pandemic, the authors note.

That sharp rise contributed significantly to the largest ever annual increase in global energy-related CO2 emissions in absolute terms, putting them at their highest level in history.

As 2022 goes on, global coal demand is continuing to be propped up by rising natural gas prices, which have intensified gas-to-coal switching in many countries, as well as economic growth in India. 

Those factors are being partly offset by slowing economic growth in China and by the inability of some major coal producers to ramp up production.

Demand for coal in India has been strong since the start of 2022 and is expected to rise by 7% for the full year as the country’s economy grows and the use of electricity expands, the report says.

In China, meanwhile, coal demand declined by 3% in the first half of 2022 as renewed COVID lockdowns in some cities slowed economic growth, but an expected increase in the second half of the year is likely to bring coal consumption for the full year back to the same levels as last year. 

China and India together consume double the amount of coal as the rest of the world combined, with China alone accounting for more than half the world’s demand, the IEA says.

Coal consumption in the European Union is expected to rise by 7% in 2022 on top of last year’s 14% jump. 

This is being driven by demand from the electricity sector where coal is increasingly being used to replace gas, which is in short supply and has experienced huge price spikes following Russia’s invasion of Ukraine. 

Several EU countries are extending the life of coal plants scheduled for closure, reopening closed plants or raising caps on their operating hours to reduce gas consumption. However, Europe only accounts for about 5% of global coal consumption.

As soaring natural gas prices have made coal more competitive in many markets, international coal prices have also risen in turn, hitting three all-time peaks between October 2021 and May 2022, the report says.

Sanctions and bans on Russian coal following Russia’s invasion of Ukraine have disrupted markets, and issues in other major exporters have contributed to supply shortages. With other coal producers facing constraints in replacing Russian output, prices on coal futures markets indicate that tight market conditions are expected to continue well into next year and beyond, the report states

Dan can be reached at [email protected] and at https://twitter.com/DanMcCue.