Coal industry hopes there is still a market for the black stuff

Coal is the most abundant and obvious energy source in the world, but opponents to its use are more vocal than ever.

It is not just concern at coal's role in creating carbon emissions - and hence climate change - that is a problem for demand. Economics also play a part, with coal's competitiveness against other types of fuel having fallen.

In the US, for example, the emergence of shale gas has meant some coal output has been priced out of the market. Peabody Energy, the US's largest coal miner, says falls in the price of natural gas will cut US coal demand by 60m-80m tons this year. US coal demand last year was close to 920m short tons, says the US Energy Information Administration.

Coal still provides about 30 per cent of global primary energy needs and generates more than 40 per cent of the world's electricity, according to the World Coal Association, the coal miners' industry body. In the world's most populous countries, China and India, the percentage of energy needs met by coal is even higher at about 70 per cent.

The International Energy Agency estimates coal demand will grow by only 0.5 per cent a year up to 2040, compared with 2.5 per cent annually over the past three decades. In the US, coal use will fall by one-third during that period, and even in China - whose voracious demand for coal kept the market buoyant for much of the past decade - a peak could come by 2030, the IEA says.

Indeed, coal consumption in China fell in 2014, with imports down 11 per cent, the first fall in a decade. Economic growth has slowed, while China is also making strenuous efforts to cut coal use to reduce pollution. Coal-fired electricity plants are running at little over half their installed capacity and, combined with abundant supply, this has pushed down global coal prices. Benchmark export thermal coal prices have fallen about 60 per cent from a 2011 peak.

If China is committed to reducing coal use, it will mirror the efforts being made in developed markets. In the US, new rules known as Mercury and Air Toxics Standards, or MATS, are expected to lead to the withdrawal from service of about 60GW of coal-fired generating capacity by 2018. That is about one-fifth of the installed capacity. Even tougher US rules are in the pipeline in the shape of a "Clean Power Plan" by the Environmental Protection Agency. Aimed at cutting carbon emissions from power generation, they could cut US coal demand by a quarter by 2020, but coal companies are fighting hard against the measures, with Peabody saying they are a "major over-reach" by the EPA.

Where does this leave coal miners? Growth in developing countries is still the great hope. Glencore, one of the largest coal miners, points out that Asia's annual demand for coal is still expected to rise by more than 1bn tonnes by 2025 - more than current total global demand for maritime traded thermal coal - with half the expected increase coming from outside China.

Much depends on the pace of transition to a lower-carbon economy. If all the policy changes that have been announced to cut carbon emissions do not take place, demand for coal is expected to be stronger still.

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India: Ambitious targets may boost demand

With years of strong growth in China's coal use seemingly slowing, India is emerging as the coal industry's great hope to take up the slack.

India has the world's second-largest population and its economy still relies heavily on coal, which meets well over half of energy demand. The election of Narendra Modi as Prime Minister, seen as a reformer wanting to step up economic growth, is seen as positive for coal use. "The Indian growth story is starting to gain traction," Mike Henry, a senior BHP Billiton executive, told investors last year.

The International Energy Agency (IEA), expects India to become the second-largest coal consumer by 2020, overtaking the US. It also expects that India will overtake China to become the largest importer of thermal coal, used for generating power. How beneficial this is for global coal exporters is likely to depend on how quickly India can improve its domestic coal mining industry.

Coal India, the state-owned miner, is being asked to double output over the next five years - an ambitious target. India may therefore become a much more important global market.

The IEA puts India's rise in coal demand in the next five years at 250 megatons. That is more than is currently consumed by any country other than China, the US and India itself. Yet, as the agency says: "There is no other China out there".

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