In this engaging discussion, Fauziah Marzuki, Global Head of Gas Markets at BloombergNEF, and Yumi Kim, a Power Markets Associate, dive into the complex world of coal and gas dynamics. They reveal how weather patterns, particularly the La Niña cycle, could extend coal's lifespan despite peak demand looming. With China dominating coal consumption, they explore contrasts in developed economies' push for cleaner energy. The conversation highlights the challenges of transitioning away from coal while meeting global energy needs.
Coal remains a crucial part of the energy landscape, showing signs of potential growth due to economic factors and regional demands despite narratives of decline.
Fluctuating weather patterns are significantly impacting coal demand, as extreme conditions often necessitate increased reliance on coal for energy security in vulnerable regions.
Deep dives
The Persistent Role of Coal in Energy
Coal continues to play a significant role in the global energy system, with expectations that its generation may see a resurgence in 2024 despite anticipated declines. Contrary to narratives suggesting an imminent peak in coal usage, recent trends indicate not only a stagnation but also a potential growth in coal generation within power sectors, largely driven by economic factors and regional energy needs. As countries rich in coal deposits, such as India and Southeast Asia, maintain or increase their coal consumption due to growing economies and energy demands, the reliance on coal persists, challenging climate targets. The dynamic nature of coal demand underlines the complexities in transitioning to more sustainable energy sources, particularly given the need for consistent baseload power amidst fluctuating renewable energy outputs.
Impact of Weather on Coal Demand
Weather patterns are profoundly influencing coal demand, affecting hydroelectric power generation and making coal a more reliable energy source during periods of drought or extreme temperatures. Fluctuations in hydro output in major coal consumers, particularly in China, have recently demonstrated how a drop in rain can lead to increased coal generation to fill the energy gap. This unpredictable relationship between climate conditions and coal usage illustrates the ongoing reliance on coal, particularly in countries where renewables are still developing. As climate change exacerbates weather volatility, coal remains a critical component to ensure energy security in regions vulnerable to these shifts.
Fuel Switching Dynamics Between Coal and Gas
Fuel switching between coal and natural gas is heavily influenced by relative pricing and infrastructure availability, with current gas prices limiting the competitiveness of gas in comparison to coal. As gas prices have risen, developed economies, typically characterized by diversified energy fleets, are increasingly turning back to coal as an economic necessity. Meanwhile, emerging markets, particularly in Asia, continue to rely predominantly on coal due to insufficient gas infrastructure and stable local coal supplies. The interplay between these two fuels suggests that coal remains a significant player in the energy mix, particularly where it fulfills baseload requirements and immediate energy demands.
Global Coal Market Trends and Trade Dynamics
The global coal market is experiencing significant shifts in trade dynamics, particularly driven by the actions of major consumers such as China and India, which are increasingly stockpiling coal to secure energy supplies. This behavior is influenced by both domestic energy security concerns and fluctuating international prices, resulting in increased imports from countries like Indonesia and Australia. Additionally, the coal supply chain has adapted to geopolitical changes, redistributing coal supplies to meet the demands of various global markets. Such transformations illustrate how global events affect coal pricing and availability, emphasizing the intricate relationship between coal production, environmental policies, and market strategies.
“It looks like coal weather today,” is an unlikely forecast, but it shouldn’t be. Coal production and consumption are linked to weather, and the return of a La Niña weather cycle has the potential to extend the lifespan of coal power assets and influence fuel switching. While peak coal demand is close, near-term drivers point to stagnation rather than a rapid decline. Developed economies are shutting thermal power assets at scale, but China is responsible for 56% of global coal consumption and continues to import and stockpile coal in vast quantities.
On today’s show, Dana is joined by Fauziah Marzuki, BloombergNEF’s Global Head of Gas Markets, alongside Yumi Kim, Power Markets Associate, to discuss key findings from their recent report Coal Outlook: Hot and Cold to 2050.
Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com
