Despite increasing interest in renewable sources of electricity generation, coal remains a leading fuel for electricity generation and industrial energy supply across the globe. Coal markets have become increasingly liquid, with spot markets gaining increased presence. Record oil prices, political instability, uncertain gas supplies, nuclear waste hazards, quantum advances in emission technologies, and the limits of renewable energy technologies continue to support coal’s use.

With coal increasingly being traded and hedged in short-term spot markets as a global commodity, there has never been a more important time to understand the international coal market and the influence that it has on regional gas and electricity markets.

Coal accounts for almost a quarter of the world’s primary commercial energy consumption and is expected to remain a key component of the energy mix in most regions over the next decades.

The outcome for coal markets over the next decade will depend not only on the coal demand but also, importantly, on how major coal producers respond to these trends.

Demand:

Demand for seaborne thermal coal in the Asia Pacific basin is expected to continue rising at 4.2% CAGR from 2010 to 2020, driven mainly by growth in India while facing high uncertainty in China. This growth will be met by supply growth at 4.6% CAGR that will come mainly from lower cost lower quality Indonesian coal, displacing higher cost Australian coal.

The figures reflect a conservative estimate as they do not account for unpredictable fly-ups and favourable impact of new power plant design migration towards lower calorific value coal.

Supply:

Indonesia's large deposits of sub-bituminous coal are unusual in relation to the world average, with typically lower ash and lower sulphur content. This makes it more environmentally friendly to mine and process than other types of coal.

Power plant operators worldwide have begun to recognise the many benefits of sub-bituminous coal from Indonesia. These include reduced capital expenditure for plant modifications, and significantly lowered operating expenses due to non-requirement of ash treatments.

India

Indian power generators and other downstream industries producers are looking to secure a large portion of their import requirement from low cost sources, using Indonesian thermal coals to offer supply security and increase the blend quality. Indian coal imports are expected to increase significantly driven largely by power utilities which have to bring down their cost of generation to remain competitive as tariff based bidding becoming a norm.

China

China has announced an increase in its power generation capacity over the next 5 years. Of its existing power units, 80% are coal-fired. Coastal regions in the south and east have been targeted as key development areas with the potential to import large quantities of coal.