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China’s appetite for coal appears healthy, for now

Jan 30, 2014

Vancouver Sun
By Chuck Chiang
January 26, 2014

It was only last November that Greenpeace turned to a new weapon in fighting the proposed coal export-related projects in the Pacific Northwest (including those in B.C.): economic analysis.

That was when Calvin Quek, Greenpeace East Asia’s head of sustainable finance program, warned North American media that China’s decade-long march toward higher coal consumption may be coming to an end — and Canadian projects intending to export to that market may be at risk of becoming obsolete.

This month, Quek and fellow environmental trends researcher Clark William-Derry (programs director with the Sightline Institute) spoke to Vancouver media, again stressing that economic reality in China may not support more coal exports intended for the Asian giant (which accounts for half of world’s coal consumption).
But as the latest data shows, coal exporters may have plenty of analytical ammunition to fire back at critics — at least when it comes to the economic viability of exporting coal to China.

Bloomberg reported last week that despite Beijing officials’ recently announced dedication to reduce reliance on coal power, the local thirst for coal, imported or otherwise, does not appear to be stalling.

Figures showed Chinese coal imports rose 13.4 per cent to 327.1 million tonnes in 2013. One exporter that has benefited is the Australian province of New South Wales, where coal exports to China jumped by more than 30 per cent (to a total of 31 million tonnes), according to The Australian.

On the overall consumption front, official figures showed consumption grew 2.6 per cent to 3.61 billion tonnes last year. To meet the demand, Reuters reported, Beijing planned to create 860 million tonnes of new coal production capacity from 2010 to 2015. UOB Kay Hian analyst Helen Lau said in the report that Chinese officials expect coal production to grow at a pace of about 2.5 per cent per year.

In a statement, the China National Coal Association said that because of Beijing’s ongoing efforts to reduce air pollution, “coal demand in major consuming regions like Beijing-Hebei-Tianjin, the Yangtze River Delta and the Pearl River Delta will be restricted.” But the statement also stressed that “the maturity and economic feasibility of replacement energy technologies awaits improvement, and national coal demand will maintain its low rate of growth.”

This appears to oppose Quek’s projection (and the analysis of several other economists), which indicated that China’s new policies could mean a coming reduction in coal consumption, which in turn will likely lead to a “slow but permanent decline in coal consumption and prices” both in China and globally.

Nonetheless, both Quek and William-Derry stated that the numbers can be misleading. Both noted that as Beijing’s cap on coal power comes into being, more visible reduction will be seen by 2017 in regions like Shandong and Hebei provinces (a drop of about 100 million tonnes of annual consumption each, Greenpeace projects).
William-Derry added that closer examination of quarterly reports of some major North American coal exporters shows that they are already losing money on Asian exports — and expanding export capacity to a saturated market could spell disaster for the province’s pocket books.

“Let me put it this way: I think the Fraser Surrey Docks is under significant risk of becoming a stagnant asset,” he said regarding the planned project. “It may not actually be able to bring any profit to the province …. and I would advise the B.C. government to move away from investment in coal exports.”

William-Derry also cautioned it may not be enough to let market economics correct the situation automatically.

“With these export projects, there’s always internal momentum,” he said. “Investors want to keep going for a while, despite falling profits … and that’s because there’s a lack of choices they have. The lack of a North American market means they have to put their eggs in the Asia basket.”

I wrote in this space in November that whether China’s caps and regulation would translate to palpable reduction in China’s coal consumption is debatable. That is still the case.

Last week’s numbers, most of which were accumulated before Beijing’s announcement to shift away from heavy-polluting coal (to improve local air quality), aren’t enough evidence to shift the discourse one way or another. More data in the coming years is needed for a fuller picture.

But at the very least, it would appear China’s current coal consumption levels won’t see a major shift in the near future. Coal remains the most affordable and reliable power source in China, especially in the face of the situation at the Fukushima nuclear plant in Japan.

Even as China is earnestly trying to reduce pollution levels, most numbers indicate that absolute consumption will continue to rise. Domestically, Beijing already approved about 101.3 million tonnes of new coal production last year (although about 300 million tonnes of capacity has been removed in the last decade).

And then there’s the rising prominence, potentially, of synthetic natural gas, or SNG. The conversion of coal into less-polluting SNG has been gaining traction in some circles in China, and it could provide an interesting future use of coal that allows Beijing to both improve air quality and keep using coal. (The problem with SNG is that while it is cleaner-burning, more carbon emissions are produced in the production process, which may be even more problematic for the international community.)

Again, only time will tell what is going to happen. And that’s a luxury that officials here in B.C. don’t have when it comes to deciding whether coal export to Asia is the correct road to follow.

500 delegates at the Cargo Logistics Canada conference this week in Vancouver.

Click to view original article from The Vancouver Sun



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