Key Takeaways:
The 14th Asia-Pacific Economic Cooperation (APEC) Energy Ministerial Meeting focused on transitioning from fossil fuels to clean energy, with a commitment to doubling renewable energy within six years and reducing energy intensity by 2035.
Coal consumption in developed nations is projected to decline, with global coal imports expected to drop annually. Key exporters like Australia, Indonesia, and Colombia will be significantly impacted, especially as China and the EU reduce their coal imports.
Despite global trends, coal demand in South and Southeast Asia is expected to rise due to affordability, leading to a more centralized coal market in the East.
As coal demand falls in advanced economies like Japan, South Korea, Taiwan and the EU, investment in renewable energy sources like hydrogen and wind is set to increase in those countries. This shift may challenge traditional coal exporters.
From August 15th to 16th, Peru hosted the 14th APEC Energy Ministerial Meeting. The meeting focused on strengthening efforts to transition from fossil fuels to clean and sustainable energy sources, such as low-carbon hydrogen. Regional powers like China, Indonesia, Japan, Korea, Taiwan, and Thailand participated, emphasizing the importance of collaboration. They also discussed the need to review domestic strategies, set targets for reducing carbon emissions and share their hydrogen initiatives. These steps are seen as essential for establishing low to zero-emission energy systems in each economy. The shared consensus of needing to replace fossil fuels could impact the global demand for key resources like coal, hampering the production, supply and export of those resources to and from the APEC region. However, challenges to the transition to green energy remain. One of the concerns is the affordability of establishing renewable energy infrastructure, making fossil fuels hard to replace.
The APEC region accounts for over half of global energy demand (56%), energy supply (58%), and electricity generation (68%). As the largest energy-consuming entity, it is also responsible for 60% of global greenhouse gas emissions. Recognizing the negative impact of these trends on environmental sustainability, APEC members are committed to continuing their commitment to meet their goal of “doubling renewable energy” in the next 6 years and, most importantly, to decrease their 45% energy intensity by 2035. According to the APEC Energy Supply and Demand Outlook, coal consumption is projected to decline over the next 25 years, with an 80% decline across industrial, agricultural, transportation, and private sectors. Moreover, coal usage in energy generation is expected to face a 90% fall under a Carbon Neutrality scenario during the same timeframe.
In specific regions like China, coal consumption is projected to have a 10% reduction, dropping from 68% to 58%. Yet, the consumption rate of coal in Southeast Asia is expected to have an upward development, from 6% to 34%. The predictions assume a rise in hydrogen demand as a cleaner alternative to coal in power generation in more advanced communities. In contrast, the continued growth of coal use in Southeast Asia is due to its affordability, which makes hydrogen a less viable option for developing countries. Consequently, coal production will also see a 77% decline, impacting global coal trade to drop by two-thirds by 2050.
Future Outlook:
Declining coal consumption in developed nations will hamper coal trade between key export countries such as Australia, Indonesia, Russia, Colombia, South Africa and the US. Specifically, a decline in coal imports could be observable in China's coal import projections. Chinese coal imports are expected to drop significantly from approximately 370 Mt (million tonnes) in 2023 to 300 Mt in 2024, with a further decline to 160 Mt anticipated over the next five years. Similarly, EU coal imports are projected to decrease from nearly 100 Mt in 2022 to 50 Mt by 2029. Global imports are expected to reduce at the rate of 2.6% per annum, dropping from 1120 Mt to 957 Mt in the same timeframe.
The Compound Annual Growth Rate (CAGR) of coal exports is declining across most key exporting countries, with Colombia experiencing the steepest decline, followed by South Africa. Colombia's CAGR is projected to be -6.0 by 2029 due to anticipated decarbonization policies. South Africa's coal exports are also expected to decline, with a projected CAGR of -3.6, driven by reduced demand in the UK and EU markets.
Geopolitically, the Russian export of coal depends on the trajectory of Chinese coal import tariffs against non-free trade agreement (FTA) nations and its action regarding its war against Ukraine. KSG assesses there to be a likely continuation of the decline in Russian exports of coal with some of its importers such as Korea and Japan, as the US keeps pressuring Russia with sanctions and import bans. This incentivises importers to shift to US coal, which presents a short-term benefit to US companies.
The production and export of coal to India and other South/Southeast Asian countries remains dominant and is showing an increase due to its affordability. KSG assesses that the exporters will redirect their coal supplies to those countries thereby creating a centralized coal market in the East. In 2022, India had 150 Mt of coal imports and is expected to increase to around 200 Mt in the upcoming 5 years. The same progression can be seen in other South/Southeast Asian states despite having emission policies in place. For example, Bangladesh and Pakistan both intend to reduce emissions, by 22% & 50% respectively, by 2030, however, contrasting the vision, they also seek to expand coal power plants. With the delay of renewable energy integration in Bangladesh, the total coal demand is expected to grow to 20.4 Mt by 2041, a 16 Mt growth through the years since 2019, potentially hindering their vision of lower coal consumption (15.2 Mt in 2041) for the “Perspective Plan of Bangladesh 2021 - 2041”.
As advanced countries like the UK, EU, Japan, South Korea and Taiwan lower their demand for coal, the production of clean, renewable energy like hydrogen, solar, and nuclear offshore wind farms will create further opportunities for the establishment of renewable energy markets. For example, Tokyo Gas announced its 21.2% share of investment in a Portugal offshore wind farm programme, “WindFloat Atlantic” on August 6th. This could affect Australian coal exports as Japan, South Korea, and Taiwan are among its top five importers and in 2023, Australia’s thermal coal exports to these three countries alone were valued at $31.6 billion.