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New China data shows how Australia’s coal industry is at risk

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IEEFA

Buckley-071615-436x300Statistics for the first six months of the year released this week by China’s National Energy Administration show the continuation of a major electricity sector transformation, with profound ramifications for the coal export industry.

While China’s electricity demand grew by 1.3 percent year over year from June through January, its coal consumption dropped by 5 percent, building on the 3 percent decline reported in the full year of 2014.

What it comes down to is that China has decoupled its economic growth from its coal usage. These new figures starkly demonstrate that while electricity demand continues to rise and GDP growth remains at a level that would turn any Western treasury green with envy, coal consumption is rapidly declining as the country focuses on shifting to an “everything but coal” energy mix.

Thermal coal consumption in China peaked in 2013 and is on track to decline by 155 million tonnes in 2015. That’s on top of the 95-million-tonne decline reported in 2014. Utilization rates for thermal-fired power stations declined, too, from 54.2 in the first half of 2014 to a record low 49.3 percent in the first half of this year.

Meanwhile, wind-farm electricity generation in China was up 29 percent year-over-year in the first six months of 2015, thanks to the installation over the past 12 months of 22 gigawatts of new wind-farm installations. Hydroelectricity production is up 12 percent year over year with 15 gigawatts of new hydroelectricity capacity commissioned in 2014 and in the first half of this year. China has also added 4.4 gigawatts of nuclear and 12 gigawatts of large-scale solar in the past year.

All of this adds up to gloomy news for coal-exporting countries, in no small part because China has moved to protect domestic production to meet coal demand where it still exists. Imports in the first half of 2015 were down 38 percent year over year, on track to decline by more than 80 million tons year over year in 2015; a number almost double the combined increase in demand for thermal coal imports from India and all of South East Asia expected this year.

That 5 percent decline in China’s thermal coal demand since January will be a major point of discussion at China Shenhua Energy Corporation, owner of the recently approved Watermark mine, which has yet to open but is already on thin ice. Shenhua this year has stopped importing coal into China in order to limit the erosion of demand for its highly profitable domestic operations.

In upcoming meetings, the company’s board will have to weigh the A$700 million it has sunk already into the Watermark project versus whether to invest an additional A$1bn to keep it going. Watermark, in short, is a potentially stranded asset, with high transportation costs.

Shenhua is a vertically integrated coal-fired power company, and it doesn’t need Watermark. If it proceeds with the project, it will probably end up having to close existing mines in China to accommodate excess supply in a declining market. Such realities make for a compelling case for walking away from Watermark.

Our research finds this latest date out of China reflect a significant government focus on forcing a structural economic shift away from energy-intensive sectors like construction and toward less energy-intensive service and consumer industries.

This change is appearing now in the data. Heavy industry electricity demand declined by 0.9 percent year over year in the first half of 2015, while tertiary demand—for office equipment, kitchen appliance, heating, ventilation and air conditioning—increased by 8.1 year over year and residential demand was up 4.8 percent.

So while GDP grows at 7 percent, heavy industry is declining and consumer and service industries are reporting strong growth.

The nexus between economic growth and coal usage in China has been cut. Month after month, year after year, the figures tell the same story. China is rapidly ceasing to be an importer of seaborne thermal coal.

The message to investors is plain: this is a sector in structural decline.

And there’s this to consider as well: India, the second most populous nation on Earth, has now firmly embarked on a similar electricity-sector transformation that will result in an end in the next decade to thermal coal imports there too.

Tim Buckley is director of energy finance studies, Australasia.

Source: IEEFA. Reproduced with permission.  

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  • Island fisher

    Can someone please tell Abbott and co they may think coal is good for humanity but humanity no longer wants coal

  • Peter Fagan

    Good summary Tim. I think a turning point was the extreme air pollution experienced in Beijing in recent years. Foreign countries and corporations were facing the prospect of having their diplomatic staff refuse to serve in Beijing because of concerns for their own health and the health of their children.

    China got the message – coal is dirty, dirty stuff. Time to clean up.

    I looked at Whitehaven Coal Limited [ ASX:WHC ] on the ASX website. This is the company that brought us Maules Creek. Its Board Chairman is Mark Vaile, a former Deputy Prime Minister of Australia and leader of the National Party of Australia. During the last five years, the WHC share price peaked in February 2011 at $6.40. It has declined consistently and steadily and today (17 July 2015) closed at $1.27. According to the ASX website, WHC does not pay a dividend.

    I believe the coal industry is asking Australian state and federal governments to put public money where private investors won’t. Is this a responsible use of taxpayer dollars?

  • mick

    yet another barrier reef oil spill I find it appalling and visually awful wonder what abbott and hockey think

  • Miles Harding

    Now for the big problem: Get this to penetrate the thick heads of the ideologues presently running the country. I suspect that the Captain’s response would be ‘over my dead body’!

    We can hope for an encounter like this one in the attached youtube clip from Men In Black where Edgar meets the bug:

  • Les Johnston

    China has responded to the factual data which shows that air pollution from the burning of coal causes health impacts as displayed by significant increases in Type2 diabetes. The other interesting aspect is that Chinese leaders do have knowledge of science and engineering and respond to that knowledge.

    • Alastair Leith

      Has that been shown to be the only cause for increased Type 2 diabetes — i.e. statistically controlled against dietary/lifestyle factors? If you’ve read The China Study by Prof T Colin Campbell you’d know that the largest epidemiological study ever conducted showed, overwhelmingly, that changes from traditional high plant, high starch and vegetable diets to diets high in animal fats and animal proteins (i.e. SAD Western diets) is the leading cause of a rise in all the developed world disease epidemics in China including type II diabetes.

    • Jacob

      What China could have done is not make so much steel in China.

      Get Aussie iron ore and Aussie coking coal and make steel in AUS and import into China.

  • ben

    Excellent news!

  • Bob_Wallace

    China decoupled GDP growth and coal consumption a few years back…

  • bob

    im doing sience on this
    🙂

  • bob

    cow

  • bob

    deez nuts

  • bob

    im doing geogrofy I ment #pro spelling

  • bob

    tim bukney is my teacher no joke

  • bob

    im watchinging u jeff

    • jeff

      no u aint im not in the website

  • jeff

    deez nuts haa

  • jeff

    why

  • jeff

    hi bob lalalalallalalala

  • bob

    realy 🙁

  • bob

    :……….(

  • jeff

    oh no u didnt

  • jeff

    im baaaaack