Coal was almost as volatile as oil and natural gas in 2008, with its global trade price down more than 50% since the summer. While North American natural gas and global oil prices are poised for rebound since they have fallen below the higher marginal cost of production, coal production costs remain below current prices by most accounts. Therefore, coal prices have substantial room to fall if economic conditions continue to deteriorate. Below are some thoughts on coal supply and demand as we all prepare for the year ahead.
The recession has brought stagnation to demand growth throughout the world, even in China as I shared a few weeks back. It looks as though global demand growth may stop in its tracks after a higher than 4% speed in 2006 and 2007. If Chinese and Indian exports continue below year-ago levels and renewables continue to grow, we may even see lower coal consumption worldwide in 2009. This scenario would be a beneficial outcome for the climate that can give hope to international negotiations achieving lower emissions in the 2010s and beyond.
Coal supply seems to have higher growth potential than oil and natural gas due to the low costs of production and its widespread and vast reserves. The absence of a coal “OPEC” helps ensure a secure supply of the fuel in the years ahead. This is especially the case in the US — the site of more than a quarter of global reserves.
A key driver in coal’s price is climate policy since coal consumption emits the most carbon dioxide (~20% more than oil and ~75% more than natural gas). But an interesting potential result of a carbon tax or cap & trade system is less change in the price of coal electricity than one would think. Lower coal demand may lower coal’s price enough to make up for half of the higher carbon charge, especially if wind and solar significantly drop in price towards grid parity. And down the road — while clean coal is no reality today, I hope Princeton scientists and others make advances in carbon capture and sequestration for future coal plants and we all deploy more scrubbers and improved policy to clean up the current coal mining and combustion of today.
Coal has a wide price range potential to me (like oil and natural gas) since its price could fall as well as rise. I put the range for traded coal at $50-$100 from today’s ~$80 per metric ton. The average US price may fall if electric consumption falls a great deal in the US and its main coal export market of Europe.
Bottom line: Unlike oil and natural gas, coal prices have significant room to fall from today’s levels. While coal may run into production constraints like we see in the oil sector already, we have many years of strong growth potential between then and now. Consumption levels will be determined by climate policy and the advance of price competitiveness by wind, solar and efficiency upgrades.
Onwards in the sustainable energy transition-
To be part of a “sustainable energy transition”, many of the environmental impacts of the coal would need to be addressed / mitigated. However, the image, and concept itself, of “clean coal” has been severely tarnished in public perceptions by some recent events (Tennessee coal as spill, etc.)
So will the new phrase now be “sustainable coal”? Somehow that does not seem to be a term that would fare any better than “clean coal”…
Thanks for your comment-
I completely agree that coal has a long way to go to earn credit as “clean” or “sustainable.” Here’s hoping that the industry will make real progress (not just PR progress) and that efficiency will be deployed and renewables will take greater market share from coal.
Onwards to sustainability,
Dennis
A coal spill has nothing to do with “clean coal.” The term comes from it burning in our power plants and not emitting the harmful gases that it once did. Coal is a resource we have in America and is a great export for our country. Education is needed about its’ positives and negatives. Considering it is an asset we have in the United States I feel it is something we should research instead of writing off as “evil.” This Christmas I decided to look at the bottom of each of my kids toys as they opened them, all were made in a foreign country. I have nothing against imports but I do have something against our country letting our dollars and jobs go overseas. Invest in coal; at the very least it is something we can use to power our homes and EXPORT to other countries.
Thanks for sharing-
I agree that we need to make the best of our local/regional resources when it comes to energy. Solar in the Southwest, wind the the Great Plains, natural gas in gas-producing regions, and coal in coal-producing regions (as long as we can continue to clean up its operations — its greenhouse gas emissions, sulfur dioxide pollution, coal ash slurry spills, mercury, etc.). And efficiency is the path to making our improvements cost-effective for the services we receive from energy (lighting, heat, refrigerators, computers, and cell phones, etc.).
Here’s to us all working hard toward a Sustainable Energy Transition in the years ahead-