Coal demand to surge, but Australia will miss out

Later this year will be the 28th anniversary of the signing of the Kyoto Protocol, which saw an agreement struck to pursue emissions reductions and stabilisations.

In the almost three decades since, the decline of thermal coal demand has been forecast repeatedly, only for demand to surge to new heights, largely driven by dramatic increases in consumption in China and India.

According to an analysis by Global Energy Monitor, the world has continued to add coal-fired electricity capacity in net terms every year so far this century.

The 2023 calendar year saw the largest net rise in coal-fired electricity capacity globally since 2016.

When looking at the granular breakdown, the trend is clear: the developing world, particularly China and India, continues to add to coal-fired capacity, while the developed world continues to close coal-fired power stations.

Meanwhile, the peak annual rate of reduction in coal-fired power station capacity occurred back in 2020 and has since decelerated significantly.

For years, the longevity of growing demand for thermal coal has been an expected boon to Australia’s fortunes.

But in the coming years, that’s set to change.

According to projections from the Indian Ministry of Coal, domestic coal production is set to rise by over 50% on 2023-24 levels by 2029-30.

Yet despite the expected surge in Indian coal consumption and China continuing to bring additional thermal coal-fired power stations online for years to come, figures from the Institute for Energy Economics and Financial Analysis project that we are currently in the midst of peak demand for seaborne coal exports.

While this may seem somewhat strange to see continued robust growth in net global coal-fired power station capacity alongside falling seaborne import volumes, it comes down to the major players, India and China in particular, growing domestic coal production to minimise demand for imports.

For a long time, India has been a proponent of domestic self-sufficiency, which has only been further intensified under the current government of Prime Minister Narendra Modi. This strategy holds several major benefits: it largely keeps the proceeds for higher levels of demand within the domestic economy and leaves India better placed than its rivals to endure a shock interruption to the flow of global energy supplies.

Conversely, imports of commodities, particularly from Australia, have significantly contributed to China’s rise. However, as the domestic coal industry in China continues to grow, the Middle Kingdom has recently witnessed a significant increase in coal exports.

Given the relative quality of Australia’s coal, it will likely continue to be preferred by importers who are not concerned with domestic self-sufficiency.

What is in question is the price that coal will bring as the nations that hold the title of the last major drivers of coal consumption growth seek to become more self-sufficient in their domestic electricity needs.