Analysis firm sees brighter future for mining companies, but climate researchers disagree
(Flickr/ECSP)
By Megan Darby
Coal prices will spike towards 2020 as supplies dry up, research firm IHS Energy is predicting.
“The future of coal is brighter than some people think,” said David Price, analyst at the firm.
“Coal’s battle for the European and US markets has likely been lost, worn down by increasing environmental costs, government measures to move away from coal, and in the US at least, competition from cheap gas, but other markets continue to offer promise of further growth.”
A commodity slump over the past five years has driven major players like Arch Coal into bankruptcy and others to slash investment.
Governments are under pressure to reduce their reliance on the polluting fossil fuel, after agreeing a UN climate pact in Paris.
Yet despite that deal, IHS sees the industry’s fortunes eventually reviving, with production cuts in Indonesia and the US tightening the market.
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In Europe, the average cost of thermal coal – the kind used in power stations – fell from US$125 a tonne in 2011 to $46 last month.
Price expects the bust to continue for a few years, then return to boom times as China’s economic growth strengthens.
“The ground has already been laid for the next boom in coal prices,” he said. “The longer the wait for price recovery goes on, the greater the likelihood that values will spike.”
London-based think tank the Carbon Tracker Initiative disagreed.
Two thirds of mining capacity is running at a loss, noted head of research James Leaton. It will struggle to stay in business for a protracted price slump.
“By 2020 the alternatives will only have got cheaper and the competition will be even tougher,” he said. “Even if supply is curtailed, demand may still disappoint in a low carbon future compared to industry expectations.”
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Carbon Tracker specialises in monitoring and predicting the impact of global efforts to curb greenhouse gas emissions on the financial system.
In Paris last December, 195 countries agreed to hold global warming “well below 2C”.
The most comprehensive study of its kind, from UCL, found more than 80% of coal reserves worldwide was unburnable under a 2C limit.
Another paper, published by Oxford University last week, said all new energy infrastructure needed to be zero carbon from 2017.
New coal, oil or gas-fired power plants built would have to be closed early or blow the 2C budget.
Asked how IHS saw climate policies affecting the outlook for coal, managing editor of coal Andrew Wells said the impact was “limited” outside Western Europe.
“It will take at least five years for the COP21 [Paris summit] pledges to be turned into a meaningful shift in coal consumption,” he said.