World Energy Outlook 2015 – coal will still account for 30% of global electricity output by 2040

Courtesy of World Coal Association

The International Energy Agency (IEA) has released the 2015 edition of its flagship publication –the ‘World Energy Outlook’.

The report notes the changing dynamics of the global energy system. Future energy demand will be driven by non-OECD economies, with India replacing China as a key stakeholder in the global coal market. The IEA projects global coal demand to grow 0.4% annually over the scope of the report, compared to 2.4% over the past two decades.

Global energy demand – trends and forecasts

Intended Nationally Determined Contributions (INDCs) submitted over 2015 provided an indication of future energy use intentions. As in the 2014 edition, the IEA forecasts demographic and structural economic changes in India, China, the Middle East and South East Asia to drive global energy demand. Conversely, the report forecasts declining energy demand by the European Union (-15% over the period to 2040), Japan (-12%) and the United States (-3%).

Global energy mix under the New Policies Scenario

Under the New Policies Scenario, which takes account of future policy commitments and plans that have been announced by countries, including INDCs, the world’s energy supply mix in 2040 is divided into four almost equal parts; oil, gas, coal and low-carbon sources (ie, renewables and nuclear). Under this scenario demand for natural gas grows by 31%, oil by 12% and coal by 10% through to 2040. As in last year’s edition the IEA attributes the slower rate of coal growth to the changes taking place in China’s economy. The report suggests Chinese coal demand has plateaued and may decline after 2030. According to the paper, South East Asia, led by Indonesia, but also Viet Nam, Philippines and Malaysia, are expected to drive future demand for coal. By 2040, Asia is projected to account for four out of every five tonnes of coal consumed globally.

Coal market outlook – Changing demand dynamics

Coal will also be characterised by falling demand from OECD countries and the global iron and steel industry. The IEA projects global coal demand to grow 0.4% annually over the scope of the report, compared to 2.4% over the past two decades. Yet, coal will still account for 30% of global electricity output by 2040.

According to the IEA, the changing dynamics of Chinese coal demand will result in a 50% decline in net imports to 2040. The importance of India for the coal sector is also predicted to increase. By 2040, India is expected to become the world’s second-largest coal consumer and producer. India is forecast to overtake Japan, the European Union and China by 2020 to become the largest importer of coal. Coking coal will be sourced from Australia and Mozambique, while steam coal imports mainly come from Indonesia, Australia and South Africa.

The report identifies several trends that could have significant implications for coal demand dynamics: climate and local pollution policies; changes in coal demand prospects in China; growth of production in India; decline, rather than levelling off of Chinese demand; or an Indian push for self-sufficiency.

Special focus on India

The special focus chapter on India identifies the significant demographic and economic transformations that the country is undergoing. According to the report, since 2000 energy use has doubled, trends suggest that the sector may struggle to keep pace with demand growth in coming years.
India’s modernisation programme will be driven by fossil fuels. Coal will continue as the ‘backbone’ of the power sector due to its abundance, accounting for over 70% generation.
The report cautions that power generation capacity may be constrained by the financial situation of local distribution companies and losses in the transmission network. Bureaucracy and the silo-nature of policy development are identified as potential obstacles to investment in energy supply. According to the report, this is further complicated by land/water use, end-user tariffs, environmental factors and affordability.

The full text of the report can be accessed via the IEA website at http://www.iea.org/bookshop/700-World_Energy_Outlook_2015