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Coal remains key to Asia's power plans despite tarnished image

KUALA LUMPUR -- For environmentalists, coal is a bad word. But for some of Asia's biggest economies, the same fuel that was the bedrock of the Industrial Revolution in Great Britain in the 19th century is key to economic development plans two centuries later.

While China, the world's biggest coal producer and consumer, is slowly cutting back on its use of coal for fuel, both Japan, a coal importer, and Indonesia, the world's biggest coal exporter by weight, plan to expand their coal-fired supplies in the coming years.

Other developing economies are turning to coal as they expand their electricity grids. Vietnam is likely to double coal consumption in the coming years, as will India -- which recently overtook Japan as the world's third-biggest oil importer and where roughly 250-300 million people do not have electricity.

"China's expected energy mix points to decreased use of coal, with the share of coal-fired power generation expected to fall to 61% by 2020 from the current 72%," said Deepak Kannan, S&P Global Platts editor for thermal coal in Asia.

But with its nuclear-power sector reeling since the 2011 earthquake and tsunami that prompted the Fukushima Daiichi nuclear disaster, Japan is commissioning 45 new coal-fired power plants to meet its energy needs. Before Fukushima, around 30% of Japan's electricity was supplied by nuclear plants, and while the role of nuclear energy is expected to recover by 2030 to provide around 20% of Japan's power supply, coal will still provide around a quarter of the total, according to Japan's Ministry of Economy, Trade and Industry, with much of that to be supplied by Australia, the second-biggest exporter after Indonesia.

Coal is the world's second-most used fuel, according to the 2016 BP Statistical Review of World Energy, accounting for 29.2% of global energy consumption.

Japan's METI says that "coal as an energy resource has the advantage of stable, lower prices than other fossil fuels due to abundant resources and relatively wide distribution all over the world, but the disadvantage of imparting a larger environmental load when combusted due to its higher carbon, sulfur, and ash contents."

According to BP, oil remains the world's No. 1 fuel, accounting for 32.9% of global energy consumption, with natural gas ranked third after coal with 23.8%. The balance is made up mostly of renewable sources, such as wind and solar, which supply almost 7% of the world's electricity -- more than double their overall contribution to overall world energy consumption.

Coal has come under pressure from an increase in shale gas production in the U.S., and a slowdown in the Chinese economy, which has reduced demand for commodities. While coal prices have jumped by around 5% in recent months -- they are still at less than half the level seen in 2008 -- long-term demand for the energy resource is on the wane. The International Energy Agency said in its annual coal market report in 2015 that it was reducing its five-year global coal-demand growth forecast in response to economic restructuring in China, the source of half of global coal consumption.

"The shift in the structure of the Chinese economy away from the industrial sectors, which tend to be coal-intensive, caused China's coal consumption to fall for a second consecutive year," said Spencer Dale, group chief economist at BP.

The IEA, referring to last year's conference on climate change, added that "greater policy support for renewable energy and energy efficiency -- the foundation of the 2015 COP21 agreement in Paris -- is also expected to dent coal demand," with countries such as the U.S. and the U.K. joining China in cutting dependence on coal, already tainted as an environmental hazard.

After the Paris agreement was signed, India said that while it hoped to dramatically expand solar power, it would also double its coal-fired power supply by 2020. The planned expansion of coal-based power plants in Asia has caused alarm among proponents of the Paris deal, with World Bank President Jim Yong Kim calling the plans a "disaster for the planet" that could undermine plans to cut carbon emissions and reduce global warming.

But for coal producers concerned about the decline of global coal prices and a possible reduction in overall demand, the opening or expanding of markets in Japan, India and Indonesia is a welcome development.

Indonesia is the source of 16% of the world's coal exports as measured by weight, slightly ahead of Australia at 13% -- though the dollar value of Australia's exporters exceeds Indonesia's. Indonesia's coal producers are happy that the increase in domestic coal consumption -- to fuel a planned expansion of the archipelago's power supply -- will prove a palliative against reduced demand from China and the longer-term price decline.

"The prolonged low prices of coal create[d] a problem for the coal sector in Indonesia," said Supriatna Suhala, executive director of the Indonesian Coal Mining Association. "This year's production level may reach only 380 million tons compare[d] to 392 million tons in 2015 and 435 million tons in 2014," he said, adding that reduced demand from China was also contributing to lower production.

But Suhala said that coal producers in Indonesia will in time benefit from the government's plans to add 35,000 megawatts to the country's power supply, based partly on 117 new coal-fired plants, including a major Japanese-backed investment at Batang in Central Java, which is expected to proceed despite opposition from local landowners and environmentalists.

A spokesperson for PT Adaro Energy Tbk, which is involved in the Batang project through its Adaro Power subsidiary, said that "Indonesia's economic growth relies on a substantial increase in power capacity," with coal regarded by Adaro as "the only fuel that can fulfill the need and produce electricity required."

Kennan of S&P Global Platts said that "Southeast Asian demand for coal is expected to grow by 250 million tonnes by 2030," with most of this increase due to growing Indonesian coal consumption, while Vietnam is likely to double coal consumption by 2030 to fuel its expanded electricity supply.

"Southeast Asian demand for coal is expected to grow by 250 million tonnes by 2030," said Deepak Kannan, who added that most of this increase would be due to growing Indonesian coal consumption, while Vietnam is likely to double coal consumption by 2030 to fuel its expanded electricity supply.

Another factor in coal's favor in Asia is the fact that, unlike in Europe and North America, natural gas is not a major contributor to electrification in the region.

"Gas is used for power generation, for example, in Thailand and Vietnam, but not generally throughout the region to the extent that it contributes in North America and Europe," said Stephen Wilson, managing director of Cape Otway Associates, which provides commercial and policy advisory services on energy and resources, economic analysis and strategy, in a study published by the Minerals Council of Australia, a lobby group for the country's influential mining industries.

Australia-based coal miner BHP Billiton says that worldwide, "absolute demand" for coal is "expected to increase by 10-15% by the mid-2020s, despite a declining share in the global electricity generation fuel mix."

Asia is expected to be central to the continued prominence of coal in the world's energy mix as the region's big economies continue to grow and become more urbanized, increasing demands for electricity.

"We expect that thermal coal will remain front and center in Asia's energy portfolio into the foreseeable future, because it is the cheapest and most-readily available fuel source for power generation," Mike Henry, BHP Billiton's president of Australian operations, told media on June 21.

A spokesperson for PT Adaro Energy Tbk, which is involved in the Batang project through its Adaro Power subsidiary, said that "Indonesia's economic growth relies on a substantial increase in power capacity," with coal regarded by Adaro as "the only fuel that can fulfill the need and produce electricity required."

Kennan of S&P Global Platts said that "Southeast Asian demand for coal is expected to grow by 250 million tonnes by 2030," with most of this increase due to growing Indonesian coal consumption, while Vietnam is likely to double coal consumption by 2030 to fuel its expanded electricity supply.

Another factor in coal's favor in Asia is the fact that, unlike in Europe and North America, natural gas is not a major contributor to electrification in the region.

"Gas is used for power generation, for example, in Thailand and Vietnam, but not generally throughout the region to the extent that it contributes in North America and Europe," said Stephen Wilson, managing director of Cape Otway Associates, which provides commercial and policy advisory services on energy and resources, economic analysis and strategy, in a study published by the Minerals Council of Australia, a lobby group for the country's influential mining industries.

Australia-based coal miner BHP Billiton says that worldwide, "absolute demand" for coal is "expected to increase by 10-15% by the mid-2020s, despite a declining share in the global electricity generation fuel mix."

Asia is expected to be central to the continued prominence of coal in the world's energy mix as the region's big economies continue to grow and become more urbanized, increasing demands for electricity.

"We expect that thermal coal will remain front and center in Asia's energy portfolio into the foreseeable future, because it is the cheapest and most-readily available fuel source for power generation," Mike Henry, BHP Billiton's president of Australian operations, told media on June 21.

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