Asian markets for coal will improve slightly in the next fewyears, but will peak around the mid-2020s, according to experts speaking July12 at an energy conference hosted by the U.S. Energy Information Administration.

"We do not believe that the national coal consumptionin China has peaked yet," said Xizhou Zhou at the conference. The seniordirector of IHS Energy says that this peak in demand — including the need formetallurgical coal used in steelmaking — likely will not be reached until 2025or 2026.

"If you look at economics coal is still by far thecheapest source in the system," he said, adding that the cost of thebridge towards natural gas or renewable sources is expensive in China."Whatever is promised in the climate fund today is not enough for manycountries" to make that switch, he said, adding that natural gas is notnecessarily a cheaper alternative right now. "In China, there is nocompetition in terms of economic volume. It's all really driven by coastalareas' need for cleaner air," he said.

This does not necessarily apply to all parts of the country,though, and Zhou noted that the country's west is still projected to increaseits consumption in the long term.

Part of the overall decline in imports is due to the slowingpace of cement and steel production in China as the country shifts its economicstrategy.

The market for high-quality coal in India is expected tocontinue in more developed regions of India as locally produced grades in theSouth Asian country are mostly much lower, according to Jitendra RoyChoudhury,a research fellow at the King Abdullah Petroleum Studies and Research Center.

Natural gas is unlikely to be a big player in the future dueto the high cost of installing gas plants and the lack of local supply inIndia, he said. But coal consumption growth still faces challenges due tobankrupt electricity boards in the country. Policydecisions are the biggest factor in terms of how the energy market develops,RoyChoudhury says.

Asia coal demand rampup to benefit U.S. exporters little

Sylvie Cornot-Gandolphe, president of SCG Consulting, saidthat many markets in Southeast Asia are projected to increase coal consumptionand production through the mid-2020s.

"This is really a booming region for coal demand, andmost importantly for coal imports, which is really unique in the global tradeat the moment," she said at the conference. She noted that around 120million people in the area still do not have access to electricity, and new coal-firedgeneration is likely to serve this need in the coming decade. Indonesia was amajor point of interest, she said, as permits have been issued or new coalplant projects have been announced which would amount to dozens of newgigawatts in capacity. "The coal section isprojected to grow immensely," she said.

But this is unlikely to be of any large benefit to U.S. coalexporters, since Indonesian production is also likely to increase and othercloser markets like Australia are better positioned to pick up any slack. Netcoal imports by Southeast Asia are forecast to plateau around the mid-2020s aswell, she said.

One potential regional exception in the short-term isVietnam, which recently became a net importer of coal. Cornot-Gandolphe saysthat while projects totaling roughly 30 GW have been announced in the area incoming years, the country is also developing a plan to shift towards naturalgas and renewables, so this added capacity is uncertain.

She noted that growth projections in coal consumption couldchange in a number of ways, however, particularly since many internationaldevelopment banks that help finance energy projects have bans on coal financing.

A EIA Short-Term Energy Outlook released on July 12 in conjunction with the conferencefound that while coal production had increased in June by 6 million tons fromthe previous month, coal production was projected to decrease by 100 millionshort tons in 2016. This would be the largest drop both in percentage and ofoverall tons since data began being collected in 1949.

The EIA estimates U.S. coal exports will continue to dropthrough this year and the next.

"We really don't see a lot of U.S. materials floatingover [in Asia]. Everyone seems to be Chapter 11 right now," Zhou said. Henoted that while 2009 was the peak of imported coal in China, this peak wasonly a short-term thing. Now that import levels are going back down,"everyone's freaking out," he said.