Will Coal Surpass Oil as the World’s Top Energy Source?

If current trends continue, coal is poised to match – or potentially overtake – oil as the world’s most widely used energy resource in the next five years. However, demand is expected to weaken in the U.S. due to the shale gas boom, causing difficulties for the domestic coal industry.


According to a recent report from the International Energy Agency (IEA), demand for energy has been increasing steadily since 2000, and coal supplies account for nearly half of the incremental primary energy supply globally. Coal demand grew 4.3 percent in 2011 alone and is unlikely to decrease in the foreseeable future.

“Coal’s share of the global energy mix continues to grow each year, and if no changes are made to current policies, coal will catch oil within a decade,” Maria van der Hoeven, IEA executive director, told the Financial Times.

Although coal won’t grow quite as fast as it did the past 10 years, the latest IEA projections see coal consumption rising to 4.32 billion tons in 2017, compared to 4.4 billion tons of oil. “The world will burn around 1.2 billion more tonnes of coal per year by 2017 compared to today – equivalent to the current coal consumption of Russia and the United States combined,” van der Hoeven explained.

However, although demand for coal is rising worldwide, it remains muted in the United States. This is not due to green energy policies or practices, but economics – thanks to the shale revolution, natural gas is much cheaper in the American market. U.S. coal demand was 697 million tons in 2011, but the IEA estimates that it will fall to 600 million tons by 2017, with U.S. production dropping from 771 million tons in 2011 to 697 million tons in 2017.

Exports to the rest of the world won’t make up for the 14 percent drop in domestic consumption, which will pose significant challenges for the U.S. coal industry over the next five years. Industry consolidation and some restructuring is likely to occur, with companies in West Virginia and Kentucky expected to be hardest hit.

The primary drivers fueling worldwide coal growth are steel and cement production in China, India, and other parts of Asia, as well as electricity generation. Van der Hoeven pointed to coal’s “abundant supplies and insatiable demand for power from emerging markets,” and the IEA report singles out India as driving consumption, with demand increasing at 6.3 percent a year over the next five years.

India will overtake the U.S. as the world’s second-biggest user of coal, behind China, and will overtake China as the world’s biggest buyer of seaborne traded coal by 2016, according to the IEA. China ended Japan’s 30-year reign as the world’s top importer of coal in 2011. Together, China and India will account for approximately 90 percent of the rise in coal demand through 2017, with China consuming half the world’s coal usage by 2017.

Indonesia is now the world’s largest coal exporter, displacing Australia. Many experts expect Australia to regain its position by 2017, as the country shakes off the effects of the 2010-2011 floods in Queensland, which hampered coal production.

Demand for coal in Europe is also expected to increase. Germany has announced plans to phase out its nuclear reactors, partly as a result of the Fukushima nuclear reactor disaster in Japan. Turkey’s coal demands are increasing and will make up for some diminished demand for coal on the rest of the continent as the result of green policy regulations.

Industry analyst Elliott Gue of Energy & Income Advisor told NPR that European demand for coal is high due to even higher natural gas prices, as well as Germany’s announced reduction of nuclear power’s contribution to its energy supply.

Although the forecast remains strong, unexpected downturns in the Chinese or Indian economies could potentially derail the surge in coal – though these scenarios remain unlikely.

Gas prices in Europe are expected to drop in coming years, putting them on par with coal. But as the IEA notes, globally there are “enough investments planned and in progress to ensure supply” for coal. Uncertainties could delay these developments, but there are currently almost 300 million tons per annum of terminal capacity planned, and between 150 and 600 million tons per annum of expanded capacity planned – more than enough to meet coal demand over the next five years.

 

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