In a new report, energy, mining and minerals consultancy Wood Mackenzie projects that despite efforts to limit coal consumption and seek alternative fuel options, China’s strong appetite for thermal coal will lead to a doubling of demand by 2030. China’s demand will grow to approximately seven billion tonnes per annum (btpa) of thermal coal which is contrary to speculation that its thermal coal demand may peak in the next decade.
It is very unlikely that demand for thermal coal in China will peak before 2030. Why? Because China’s aggressive investment program for nuclear, natural gas and renewables capacity is centered in the coastal region while coal-fired capacity grows in the central and western provinces. Indeed, there are also a plethora of coal-intensive conversion projects being built or planned that are significantly adding to demand.
Wood Mackenzie’s analysis already takes into account a rapid improvement in energy efficiency the likes of which have not been seen. We expect power demand per unit of GDP to fall by half in just 17 years, an extraordinary achievement for an economy experiencing such sustained growth. In spite of this efficiency improvement, power demand is still set to nearly triple to 15,000 Terawatt hours (TWh) by 2030. Indeed, if expected efficiency improvements do not materialize, then in the absence of alternatives, coal demand could increase further.—William Durbin, Wood Mackenzie’s Beijing-based President of Global Markets
Durbin notes that total Chinese industrial demand for thermal coal is expected to grow from 1.5 to nearly 2.1 btpa by 2030. Already there are government-approved coal conversion projects (coal-to-gas, coal-to-liquids, coal-to-petrochemicals) that account for more than 0.25 btpa of thermal demand. Additionally, there are planned projects that will increase demand by another 0.6 btpa.
Wood Mackenzie believes natural gas supplies will struggle to meet demand growth due to modest investment in conventional reserves and the very slow development of domestic unconventional shale gas reserves. Additionally, the high cost of LNG and pipeline imports is uncompetitive with low-cost coal.
China’s gas price and power tariff regulations will need to be reformed in order to create incentives for the national oil companies (NOCs) to make expensive investments in unconventional gas.
Our analysis already assumes an intensive investment program in unconventionals post-2020. To ramp up shale gas developments and production faster to displace coal will require a near-doubling of investment. We expect coal to hold its cost advantage until shale gas breakeven costs fall by 40-50%.—William Durbin
Aside from coal substitution by natural gas, China hopes to reduce coal usage in the coastal demand centers by building Ultra High Voltage (UHV) electricity transmission lines from the Northwest and Southwest. Wood Mackenzie’s report says this will have a limited impact on coal demand. The transmission lines from the northwest will transmit coal-fired generation; hence, it just moves coal demand from the coast to the interior. The UHV lines from the southwest will transmit seasonal hydro, requiring base load coal when hydro output falls. The net effect of the UHV lines and the non-coal-fired capacity is a flattening in thermal coal demand in the coastal power region.