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Coal stumbled globally in 2020, but 'no sign it will fade away quickly' – IEA

After an unprecedented decline in global coal demand, the International Energy Agency expects the fuel to rebound in 2021 before flattening out by 2025.

Global coal consumption fell by an estimated 7%, or more than 500 million tonnes, between 2018 and 2020, the IEA wrote in its "Coal 2020" report released Dec. 18. The organization expects coal use to rebound 2.6% in 2021, based on the assumption of a global economic recovery leading to a rise in electricity demand and industrial output.

However, global coal demand will flatten out by 2025 at about 7.4 billion tonnes, the IEA estimated. That is partly due to projections of higher gas prices and electricity demand slowing a structural decline in coal demand in Europe and the United States, where coal consumption has the potential to grow for the first time in nearly a decade. At the same time, the IEA expects China, India and Southeast Asia to drive new coal demand.

"In the United States, despite the easing in competitive pressures as a result of higher natural gas prices and the expected pickup in coal demand in 2021, coal's prospects do not improve in the medium term," the report said.

Renewables are on track to surpass coal as the largest electricity source in the world by 2025, Keisuke Sadamori, director of energy markets and security with the IEA, said in a Dec. 18 news release. By then, natural gas would likely take over from coal as the second-largest source of primary energy after oil, Sadamori added.

"But with coal demand still expected to remain steady or to grow in key Asian economies, there is no sign that coal is going to fade away quickly," Sadamori said.

Countries still face a substantial challenge reaching global climate and sustainability goals given that coal is the largest single source of global energy-related carbon emissions, the organization noted based on the trends in its report.

The coal sector's future will mostly be decided in Asia, the IEA said. China and India account for 65% of global coal demand.

The IEA reported that China continues to build coal-fired power plants but is now doing so in a "more selective way." Only a few provinces or autonomous states in China account for most of the new plants, and the plants built are increasingly more efficient than their predecessors.

"Even though China is reducing its reliance, coal will continue to be the cornerstone of its electricity supply in the coming decades," the report said. The IEA said its 2025 forecast needs to be revised once China releases its 14th Five-Year-Plan.

"China's pledge of reaching carbon neutrality before 2060 requires a long-term road map to enable the smooth transition of an economy which consumes 4 billion tonnes of coal each year," the IEA said. "Unless there are unforeseen developments that significantly boost coal demand in emerging Asian economies and China, it is likely that global coal demand peaked in 2013 at just over 8 billion tonnes."

Similarly, the IEA expects demand for coal to rise in India after plummeting in 2020. The Association of Southeast Asian Nations countries could become the third-largest consumer of coal by 2025 when it surpasses the European Union and the United States, the agency estimated.

However, the organization also noted that low natural gas prices around the world have shaken the "perception that coal is the cheapest source of dispatchable electricity." The report said even countries where coal's primary role was previously undisputed recently downgraded coal generation plans, such as Vietnam, Bangladesh, the Philippines and Egypt.

Overall, the IEA expects that worldwide coal production will slump 6.5% in 2020 compared to 2019 before increasing to 7.58 billion tonnes in 2021.

"The COVID-19 crisis has completely reshaped global coal markets," Sadamori said. "Before the pandemic, we expected a small rebound in coal demand in 2020, but we have since witnessed the largest drop in coal consumption since the Second World War."