I’m a big fan of Oxford Energy, they produce well-researched energy analysis.
Unfortunately, Oxford tends to be detail focused, not investment focused, and so there is usually a lot to wade through to tease out the effect on energy markets.
Before Christmas they published a looong piece on South East Asian coal – the main thrust being that there are plenty of countries still with plans to increase coal use:
energy demand in Southeast Asia has increased by over 150 per cent since 1990… While natural gas still dominates the electricity mix the shift to coal has accelerated
Gas-based capacity is well developed in gas-producing countries (Malaysia, Indonesia, Thailand). The role of gas in their power sector was predicated on a history of cheap domestic gas. However, in the three countries, rapid growth in power demand has led to gas shortages, pushing the countries to diversify their power mix away from gas and introduce coal to diversify and secure the power mix. Coal has also been introduced in hydro-dependent countries, such as Vietnam, to secure electricity supplies all around the year. Over the past five years, coal has been the fuel of choice for power generation: almost 25 GW of additional coal capacity was built during the period 2010–15…
The shift to coal observed since 2010 will continue in the short and medium term. At the beginning of 2016, there were about 29 GW of coal-fired capacity under construction, to be completed by around 2020, most of them in Vietnam (12.8 GW), Indonesia (6 GW), the Philippines (4.7 GW), and Malaysia (4.6 GW). In addition, in 2015, the Indonesian government announced a fast-track programme to rapidly expand Indonesian power capacity by adding 35 GW of capacity by 2019, of which 20 GW are to be coal fired
Key (unanswered) questions for Australian coal:
- Will these SE Asian countries change plans to use higher quality coal to reduce emissions (Australian coal is generally better quality than Indian or Indonesian coal);
- Will SE Asian countries skip to gas-fired plants to reduce emissions even further; or
- Do the new power plants all get changed to renewables to help solve global warming (in a post-Trump “climate change is a Chinese hoax” world? Ha!)
Main issue for coal exporters globally though is that SE Asian changes pale in comparison to the effect of China and India:
… it is worth noting that even in a high scenario, the additional import demand from the region is far less than the amount added by China or India to the international steam coal market in the past few years: in a high scenario, Southeast Asian imports are expected to increase by 155 Mt over the next 15 years, while Chinese and Indian imports increased by 323 Mt in just five years, from 2008 to 2013. Therefore, at least in the short to medium term, on the demand side, the balance of the global coal market will continue to be determined by China and India
Key investment takeaways:
- Lots of growth in coal-fired production still in SE Asia. Much of it is in low quality, high-polluting plants – which are still financially attractive.
- Most of the growth is contrary to Paris Agreement. So,
SE Asian countries will probably change plans to meet their obligationspost-Trump we have don’t know what these countries will do. Probably build more low-quality plants for the next few years.
- Not much happening in the way of nuclear power in the region.
- Renewable power is growing fast, but costs are still too high for it to be the only source for new power (I’ll delve into this more at a later stage).
- Effect is only going to be minor in the global picture, changes in coal use in China and India will drive the outlook for coal