The Future of Coal: Eight Key Themes

from The Global Coal Forum

Exploring the pace and scale of disruption to coal markets

01 August 2022

Coal investors face a multi-layered and unavoidable challenge: markets distorted by

war, trade constraints and the existential threat of the energy transition.

Our recent Global Coal Forum explored the forces shaping the future of the sector.
Across a two-day event, our experts dug deep into geopolitical shifts, the gathering
pace of the energy transition and the technologies upon which decarbonisation will
rely.

Missed the forum, or looking for a recap? Fill in the form to access Kaho Yu’s
presentation on the impact of the war in Ukraine – and read on for eight talking points
from across some of the key sessions.

1. The Ukraine crisis has stirred up energy geopolitics, highlighting the

dilemma of energy security vs energy transition

“Geopolitical factors from big-power confrontation to sanctions will continue to

dominate coal trade policy.”

The fractious geopolitics of energy is not set to ease any time soon amid a widening
global division on energy transition and supply insecurity driven by the Ukraine
crisis.

Energy insecurity has sped up energy transition in Europe but pushed Asian
countries to remain coal-dependent. Geopolitical factors from big-power
confrontation to sanctions will continue to dominate coal trade policy.

2. High energy coal prices are likely to remain elevated while sanctions on
Russian coal remain in effect

Rory Simington, Principal Analyst, Asia Pacific Thermal Coal Research:

A combination of increasing demand for higher energy coal, lack of investment and
looming gas shortages meant the coal market was under stress before Russia’s
war with Ukraine even started.

The impact of sanctions will be significant as Russia supplies over a quarter of the
high-energy coal in the global market. Sanctions will divert this coal into markets
that don’t usually take it – leaving European and North Asian markets short of
premium material.

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3. Low-carbon technologies – such as co-firing and CCUS – will be critical
for a less disruptive transition

Shirley Zhang, Principal Analyst, APAC Coal Market:

In our accelerated energy transition scenario (AET-1.5), in which the rise in global
temperatures since pre-industrial times is limited to 1.5 °C, global seaborne thermal
coal demand would be 68% lower than our base case by 2050.

The gap is defined by the pace of large-scale commercialisation of green and low-
carbon technologies that are still in their infancy today. Import-dependent
economies will have to consider all innovative technology options to mitigate energy
security risks in their net zero pathways.

4. Metallurgical coal exporters ponder new horizons as traditional price

relationships invert

Robin Griffin, Vice President, Metals and Mining Research:

Collapsing demand and supply improvements have seen premium hard coking coal
(HCC) prices revert below US$250/t with more weakness to come. Prices could
soon very well meet an inflated cost curve.

Unique premia for thermal coals should signal a turnaround, and diversion of
metallurgical coals into the power sector has already begun in earnest. But quality
and uncertainty will limit the shift, and its impact on markets. As difficult as it is to
imagine, a prolonged price inversion looks to be in the offing.

5. Investment in new coal supply remains underwhelming as miners

continue to reward shareholders

Viktor Tanevski, Principal Analyst, Coal Research:

The outlook for capital investment in coal (ex. China) is for a near 20% fall in 2022,
with a greater reduction in thermal coal. If record high prices do not incentivise more
capacity, the investment outlook could become increasingly uncertain when prices
eventually fall.

With Australia occupying a large share of the project pipeline, some new supply will
make its way to market. However, we remain cautious on supply as miners deploy
cashflow to repay debt, return capital to shareholders or consider diversification
options.

Labour shortages will also limit growth in the near term, and add to broader capital
and opex cost pressure from fuel, electricity and consumables.

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6. The steel industry must abate north of 90% carbon to achieve net zero
emission by 2050

Mihir Vora, Principal Analyst, Steel and Raw Materials:

The steel industry emits 3.3 BtCO2e annually – 7% of global emissions.

Steelmakers must capitalise on new, low-carbon opportunities en route to the
immensely challenging 1.5°C pathway. The supply landscape requires a structural
revamp. The electric arc furnace (EAF) and blast furnace (BF-BOF) route must
undergo a role reversal, with EAF accounting for three-fourths of global production
by 2050 (three times current levels).

In terms of primary metallics, green hydrogen-based direct reduced iron (DRI) and
scrap will blaze a trail. Hydrogen-based steel shall comprise more than a quarter of
global steel output. Carbon capture and storage would be essential, but its role
could diminish beyond 2040 due to limitations on capture rates and the rising
penetration of new technologies.

Given the high lead times, change and green investment must begin now.

7. The future of the metallurgical coal trade is intrinsically linked to the

success of steel decarbonisation

Anthony Knutson, Principal Analyst, Coal:

Growing pressures are mounting to reduce global carbon emissions with particular
impacts on metallurgical coal’s role in tomorrow’s steel industry. But the question is
by how much?

Under our most aggressive steel decarbonisation scenario, long-term demand for
metallurgical coal is slashed by over 60% with hydrogen injection impacting
pulverised coal injection (PCI) coal proportionally higher. How deep steel emissions
are ultimately reduced drives the long-term fate of hot metal production and demand
for coking coals and PCI.

8. Hydrogen will eventually displace coal in power and steel in Asia

Pacific

Flor Lucia De la Cruz, Senior Research Analyst, Hydrogen and Emerging

Technologies:

“Hydrogen will displace coal in steel and power – either directly or in the form of
derivatives such as ammonia.”

As countries race to net zero and low-carbon hydrogen costs fall, hydrogen will
displace coal in steel and power – either directly or in the form of derivatives such
as ammonia. (Green hydrogen is set to reach parity with grey and brown as early
as 2035 in countries like India and China.)

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 This displacement will make the Asia Pacific region the largest consumer of low
carbon hydrogen by 2050, with a combined demand from steel and power alone of
40 Mtpa.

Source:

https://www.woodmac.com/news/opinion/the-future-of-coal-eight-key-themes-from-
the-global-coal-forum/

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