Coal outlook uncertain, China remains driver – IEA

LONDON (Reuters) - The forecast for coal to 2016 is marked by extreme uncertainty over the global economic outlook and the impact of shifts in China’s domestic market, the International Energy Agency said on Tuesday.

Coal demand worldwide will keep growing in the medium term, despite calls in many countries for reducing reliance on high-carbon fuels, the IEA said in its Coal Medium-Term Market Report 2011 released on Tuesday.

Prices are seen rising steadily to 2016 on strong Asian demand growth and prone to spikes due to short-term supply problems.

“For all the talk about removing carbon from the energy system, the IEA projects average coal demand to grow by 600,000 tonnes a day over the next five years,” IEA Executive Director Maria van der Hoeven said during the launch of the report.

China will remain a major price driver in the medium term as both a huge producer and consumer of coal.

China’s share of global production is almost four times that of Saudi Arabia’s share of oil output, while the Chinese domestic market is more than three times the size of annual coal trade worldwide, the IEA said.

“What happens in China over the medium term may impact the prices for electricity that consumers everywhere will have to pay,” van der Hoeven said.

“The development of mines and infrastructure in China will shape the global coal market,” the IEA’s head of gas and coal research said.

Coal is the second most important primary energy source behind oil but its market is smaller and less mature than the oil market and more prone to short-term price volatility.

The IEA report, which asked whether the volatility seen in recent years has made trading coal like a visit to a casino, forecast a modest rise in prices and concluded that participants need to use risk management techniques.

Europe’s imported coal prices will rise from $127 a tonne in 2011 to $138 in 2016, while Asian imported prices are seen rising from $131 this year to $142 in 2016, based on the IEA’s Chinese low coal production scenario.Demand for coal will rise steadily by 600,000 tonnes per day to 6,184 million tonnes of coal equivalent by 2016, the IEA said.

Much of this demand growth will come from China and India while demand in developed nations in the Organisation for Economic Cooperation and Development (OECD) is expected to be stagnant.

The global coal market’s dependence on China will remain high, with China alone accounting for 60 percent of global demand growth, the IEA said.



Chinese coal demand will rise by 606 million tonnes of coal equivalent (mtce) to 3,123 mtce by 2016.



India, which is also struggling to meet demand through domestic supply, will see consumption rise by 177 mtce to 610 mtce by 2016.



Indonesia is expected to see rapid demand growth of 17 percent a year to 2016 because of fast-track plans to add 10 GW of coal-fired power generation.



Global supply is forecast to grow modestly at an average of 2.7 percent a year to 6,184 mtce by 2016.