Coal’s future is dying

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by Chris Becker

The three year election cycle, reinforced by the 24 hour news cycle, combined with the “lucky” nature of the Australian body politic, has now sowed the death of the coal industry, which has less than a couple of decades of life left as a major power supplier, according to the IEA. That’s three for three dead horses backed by the economic and business mandarins in Australia – iron ore, coal and LNG.

Add crude oil to the mix and do you wonder why the “new” four pillar BHP’s share price lingers in the doldrums?

The International Energy Agency has recently announced that renewable energy will overtake coal, gas and nuclear as the main electrical generator within 15 years.

This finding comes as global coal demand slumps, according to CBA via BP:

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“BP estimates that world thermal coal consumption lifted 0.4% y/y to 3.88Btoe (billion tonnes oil equivalent) in 2014, slowing from 1.8% y/y growth in 2013. Excluding the GFC in 2009, the growth in world coal demand was the slowest since 1999.

China’s coal consumption, which accounts for just over ~50% of world demand, rose by 0.1% to 1.96Btoe last year. India’s thermal coal demand advanced 11.1% y/y to 360Mtoe in 2014″.

You cannot deny that trend in this chart (via David Scutt at Business Insider):

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More on the IEA finding from the FT:

This (finding) shows today’s energy companies are making a “major fatal error” if they assume climate action is not going to affect their businesses, Fatih Birol, the IEA chief economist, said.

“That would be like assuming interest rates will stay the same for the next 25 years,” he told the FT in an interview. “It’s the same type of short-sightedness.”

For the first time in UN climate negotiations, nearly all countries are supposed to limit their greenhouse gas emissions as part of a global agreement due to be signed in Paris in December.

The measures already unveiled by dozens of nations should sharply reduce the use of fossil fuels, especially coal, in the US, the EU and elsewhere, the IEA says in a report timed to influence negotiations for the Paris deal.

It’s looking increasingly likely that it may not be enough, as the carbon atmosphere bank fills up, which means even sharper falls are likely to be required in emissions while renewable power generation needs increase significantly. Last year, renewables and nuclear accounted for 13.7% of global energy production, and about half of new power capacity construction.

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The coal industry will do its best to ensure governments renege and back-out of prior agreements on reversing emissions, as they know their future is under threat.

For Australia, a move away from a concentrated double risk – both economic and climate – reliant on a handful of now unwanted commodities to a diversified mix, is the best insurance.