Houston — Global thermal coal demand is expected to increase in the coming years, but whether supply will be there to meet it remains questionable, panel members said Thursday at CERAWeek by IHS Markit.
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The main concern is a lack of investment in new mine projects for a number of reasons, including decarbonization policies, declining liquidity in derivatives markets and a lack of capital.
"The decarbonization policies in Europe and the US are accelerating," said panelist John Hanekamp, a US-based thermal coal consultant. "As those markets shrink and we see liquidity [in the indexes] get smaller and smaller, we are going to lose the ability to sell term, which gives producers what we've been missing ... a term contract he can capitalize his mine against."
Hanekamp noted the recent decision by authorities in the Netherlands to close the 630-MW Hemweg 8 coal-fired unit in Amsterdam four years earlier than scheduled as indicative of the bearish trend for coal demand in Western economies.
"I see a problem in Europe with a lot of dead capital," Hanekamp said. "That plant is not that old ... so we are taking perfectly functioning assets and shutting them down and expanding renewables."
In 2012, the US exported 29.5 million mt of thermal coal to Europe, led by the UK at 8.7 million mt, according to US Census data. In 2018, the US exported 14.5 million mt to Europe, led by the Netherlands at 5.6 million mt, while UK imports fell to 2.7 million mt.
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"Fundamentally in the long term, we haven't' seen - in our view - significant capital reinvestment into the mining sector to even keep current levels operational today," said Jack Porco, the president of Xcoal, a US-based marketer.
Demand for thermal coal globally is set to remain stable over the next five years at around 5.4 billion mt, as growth from India and Southeast Asia will offset declines in Europe and North America, according to the International Energy Agency's coal analysis and forecast released in December.
Porco noted that coal companies are increasingly distributing gains to shareholders, making it unlikely "we are going to see additional capital for greenfield projects."
The US has done well to find new markets in Asia, particularly India, which imported 10.5 million mt of thermal coal in 2018 compared with 1.8 million mt in 2012, Porco said.
Increased demand from Asia should also pull Colombian and Russian tons into the Pacific, though Hanekamp isn't sure "those spreads are going to be favorable, unless someone is willing to pay for the quality."
"At the end of the day, it all boils down to cost," Hanekamp said. "Colombia is pretty hard to beat in terms of cost, but some longwall mines in the Illinois Basin and Northern Appalachia can do that."
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