Coal in 2022: A big year, but where to go from here?
by Scott McKnight, PhD
The top-line
Coal had another big year. Coal-power generation hit a record-high of 8 billion tonnes in 2022. This comes off a record-year for production in 2021.
Coal producers and their investors saw a windfall in profits, benefiting from an energy crisis that disrupted coal trade flows, sent prices soaring and even forced some countries to increase coal use despite climate targets.
Big changes await the coal market in years to come, with majors markets like the European Union and US shrinking and others in Asia growing at a sharp clip.
Why did coal have a big year?
Russia’s invasion of Ukraine in late February 2022 shook the coal trade and spiked its prices.
Coal benefited from the sharp increase in natural gas prices, as a wave of users switched away from gas and back to the relatively cheaper coal.
Record highs: Marker prices for different types of coal, 2020-22
Coal is the biggest energy source globally for electricity generation (thermal coal) as well as for the production of iron and steel and of cement (metallurgical or met coal). It’s also the largest source of energy-related CO2 emissions globally. The surge in coal use in 2022 marks a setback in efforts to mitigate climate change and to meet the goals of the Paris Agreement.
All eyes on China (and why China can’t kick its coal habit)
No country is more important to the global coal market than China, the country that produces the most (about 51% of global output), consumes the most (53% of world demand), and finances the most coal developments inside and outside the country.
Global coal production, 2000-2025
China’s power sector alone gobbles up one-third of global coal supplies (about 2,600 metric tonnes or Mt).
Strict and lengthy Covid-19 lockdowns in China dampened coal demand inside the country. But heat waves and summer droughts pushed Chinese to turn on air conditioners, which meant burning more coal to meet the surge in demand.
The Chinese government is split on what to do with coal. On the one hand, the goal of peaking carbon emissions before 2030 and being fully carbon neutral by 2060 means China’s vast coal-fired capacity needs to be retired. On the other hand, coal is politically powerful in China, providing jobs and revenue for provinces, and exists in abundant supply when the party-state is worried about vital inputs being cut off from world trade. China’s renewable power build-out will near 1,000 TWh (basically what all of Japan generates in power today), an impressive figure but insufficient to do away with coal.
The world needs China to get off coal, too. Recent progress on phasing out coal in the rich and developing world has basically been negated by China’s continued use and expansion of coal projects.
Don’t forget about India
India is the world’s second-largest consumer and producer of coal. As in China, coal makes up the backbone of India’s electricity system.
Since 2007, India’s coal consumption has doubled, growing annually by 6%. India is especially hooked on thermal coal (about 960 Mt or 93% of its coal demand), with 757 Mt used for electricity generation.
Don’t expect these pattern to change soon. India’s coal production hit a record-setting 800 Mt in 2021, and is expected to pass 1bn tonnes by 2025. India will continue to be the growth engine of global coal demand for many years to come.
New patterns of trade (and new players rise up)
The global coal trade, like that of oil and natural gas, is getting rejigged. Bans and sanctions on Russian commodities have hobbled the world’s third largest coal exporter and left big coal buyers searching for new supplies.
Aussie rules: Main trade flows in the metallurgical coal market, 2021 (Mt)
The EU imported about 52 Mt or 45% of its coal from Russia in 2021. The biggest buyers of Russian coal in 2021 were Germany, Poland and the Netherlands.
Because Russian coal exports were once shipped through ports in Russia’s northwest or by rail to Europe, there is little chance to redirect those volumes to more friendly buyers in east or south Asia.
Limits on Russian coal exports tightened coal markets through 2022, presenting an opportunity for smaller exporters like South Africa, Colombia, and even Tanzania and Botswana to cash in.
Big coal exporters like Indonesia and Australia only partially heeded the call. Indonesia reversed its coal export ban, sending cargoes to Europe at a premium to fill the gap left by Russia. Australia, the country that dominates the met coal trade, could only partially take advantage of high prices, hampered by bad weather and supply chain issues.
What comes next? Shrink and redirect
Coal’s big year in 2022 (and 2021, for that matter) will soon become a Rorschach test of sorts, looking like something different depending on where you are.
Coal-fired power generation is expected to shrink significantly in years to come, trapped in a pincer movement of carbon taxes, affordable renewables and lack of financing. By 2025, the EU is expected to consume 30% less than in 2022, and the US 18% less. The US will no longer be a swing supplier to the global coal market, hamstrung by underinvestment, worker shortages and transport bottlenecks.
Growth will shift east and south. By 2025, coal use in China is expected to be 5% greater than in 2022, 7% greater in India, and 14% greater in southeast Asia.
The short term is full of uncertainty for coal. How fast (or slow) will global economic activity be in an era of high(er) interest rates, since coal is vital to iron and steel production? What will happen on the battlefield in Ukraine, the regime in Moscow and the bounty of resources under Russian soil? Will governments get more serious about their renewable build-out and stricter about phasing out coal? What weather events await us (and where)?
