Asia is not coal's deus ex machina
Pollution protests at Peking University in Beijing
July 6th - Things are not going well for coal in America. Arch Coal (backer of the Longview WA export terminal) was just dropped from the New York Stock Exchange. They couldn't hold their share price above $1. Peabody Energy, Cherry Point coal-exporter and world’s largest coal company, hit its lowest stock price in decades and has many eyeing it for bankruptcy. Natural gas, along with wind and solar, have undercut coal across the country. Rising cleanup costs and the EPA's new Clean Power Plan have many utilities shutting off polluting coal plants and turn on alternatives. This has many in the industry eyeing foreign markets as their saving grace. If you only listened to coal proponents, you might think countries like China and South Korea were falling over themselves to get their hands on the stuff. But the truth paints a far darker canvas.
What the coal backers say
In May, former Montana State Senator Alan Olson penned an article for Flathead News advocated strongly for Northwest coal export with statements like:
“The demand is there in Asia, and the supply exists in Montana. But the ability for Montana to realize the tremendous benefits of increased coal production are uncertain due to transportation constraints and political obstruction.”
In an April Fox News article on Northwest coal export (filled with misleading statements too numerous to list), Wyoming Governor Matt Mead emphasize the energy “race” to supply the region. “Do we want them to get their energy from Kazakhstan, from Qatar, or from the United States?” Setting aside the fact that Kazakhstan (coal) and Qatar (oil) have very different uses for their major energy exports, lets focus on the “endless demand” notion these arguments center on.
The export terminals still slated for Washington (Longview, Cherry Point) and Oregon (Port of Morrow/ Port of Westward) all hinges on the idea that countries like China and South Korea want and need more coal. But as has been pointed out by energy analysts over the last 18-24 months, Asian demand for coal has peaked. Experts from Reuters to the Wall Street Journal have all pointed to the plummeting price of coal, as well as drops in imports from countries across the Pacific Rim.
What South Korea and China say
In the past week, both South Korea and China, the two largest markets coal companies are banking on, made announcements that further solidify their desire to get off coal.
South Korea has had a tax on imported coal for several years and starting July 1st has raised it significantly.
The tax, announced on 5 June, will now be KRW 24,000/t (USD 21.36/t) of coal with a calorific value (cv) above 5,000 Net as Received (NAR), versus KRW 19,000/t, and up to KRW 22,000/t (USD 19.58/t) of coal with a cv less than 5,000 NAR, versus KRW 17,000/t. This represents increases of 26% and 30%, respectively.
Additionally, the South Korean government has announced its decision to cancel the development plans of four coal-fired power plants with a combined capacity of 3.74GW. These were initially due for completion from 2019 onwards.
For perspective, that’s about as much energy as if we simply turned off the Grand Coulee Dam for half the year. South Korea is not only taxing the coal that’s already coming in but preventing future projects on a massive scale.
Likewise, China is no promised land for coal. Energy analysts at Platts recently broke down an outlook for Australian Coal to China (its largest supplier). The results were grim.
"Over the remainder of 2015 and 2016, China's import growth will continue to be challenged by slowing economic growth, strong hydroelectric output and measures to support the domestic industry," said the report's section on thermal coal written by economist Kate Penney.
Chinese government attempts to improve air quality in the country's cities is also impacting demand for imported thermal coal.
This last sentence is what’s most important. China and South Korea don’t want coal for the same reasons we don’t; it’s a massive polluter that’s chocking the life out of both its productivity and anyone living in a major city. It’s hard to build a dominant economy if everyone’s too sick to work.
No one wants their future to be coal
As Oil Check’s written about previously, China has seen the largest political protests in its modern history because of pollution. This might come as a surprise, until you learn that pollution is now the leading cause of death in the developing world.
The ruling party of the People’s Republic knows the livability of its cities needs to drastically improve. Its political stability depends on it. Recent announcements have seen the world’s largest polluter take significant steps to dramatically curb coal use.
Late last year the government announced it plans to cap coal use by 2020, a necessary target to meet its global pledge of peaking greenhouse gas emissions by 2030.
According to a recent analysis, in the first four months of 2015, China’s coal use fell almost 8 percent compared to the same period last year — a reduction in emissions that’s approximately equal to the total carbon dioxide emissions of the U.K. over the same period.
The coal industry desperately wants Asia to be its deus ex machina. But beyond the fact that their arguments for bottomless demand are simply wrong, they’re frankly insulting. The notion that people in Seoul and Brusan, Shanghai and Guangzhou don’t care about pollution is a myopic view. These aren’t just engines of endless growth fueled by energy. These are real people with the same desires for healthy productive lives as anyone in Seattle, Omaha or Boston. And they’ve made it clear coal is their past, not their future.
Nick Abraham - Editor and Lead Contributor Oil Check Northwest