Diminishing long-term outlook is outside the control of Australian governments
Growing energy security concerns mean the global energy transition away from coal is accelerating, and the long-term outlook for Australian thermal coal exports is declining faster.
Australia will find it hard to replace its key export markets of Japan, South Korea and Taiwan as developing Asian markets are significantly reducing coal’s role in their plans.
China and India will seek to increase reliance on domestic coal, leaving Indonesian coal exporters in search of new markets competition with Australian exporters.
The long-term fate of Australian coal exports is outside the control of state and federal governments.
7 September 2022 (IEEFA Australia): Despite the recent profitability of coal mining companies, Australian governments should begin planning for a faster-than-expected transition away from thermal coal, finds a new report from the Institute for Energy Economics and Financial Analysis (IEEFA).
Record-high coal and gas prices globally will accelerate the switch to cheaper more energy secure solutions like wind and solar in Australia’s key and emerging export markets.
Author Simon Nicholas says the short-term profits currently being made by Australian coal miners contrasts strongly with the long-term outlook for export volumes -- which is one of permanent decline.
“Australia’s traditional key export markets—Japan, South Korea and Taiwan—are all shifting away from reliance on expensive imported thermal coal in the long term,” says Nicholas.
“The Federal Government’s Office of the Chief Economist forecasts coal imports into Japan, South Korea and Taiwan to all go into permanent decline this decade.
“Meanwhile the key growth markets that were supposed to provide a bright future for Australian coal exporters – such as Vietnam, Pakistan, Bangladesh and the Philippines – have all significantly reduced imported coal’s role in their long-term power planning.
“Despite the recent rise in European imports of expensive Australian coal, the Russian invasion of Ukraine and the subsequent global energy crisis will only accelerate this transition.”
As well as some countries switching to more energy-secure renewable energy, there is real risk of an accelerated end to Chinese and Indian thermal coal imports as they seek to become more reliant on their own domestic coal sources. The global energy crisis has only increased this risk.
Report co-author Andrew Gorringe says the government of New South Wales – the source of most of Australia’s thermal coal exports – forecast declining coal volumes in the longer term in 2021 but the accelerating transition could push actual volumes down even faster, and closer to the state government’s ‘Lower Global Coal Demand’ scenario.
“Very high coal prices are a double-edged sword for the coal industry. At this stage of the energy transition, high prices will destroy long-term demand for coal even faster,” says Gorringe.
“Declining demand will impact mining employment. Even under the NSW government’s Base Case scenario, it projected that employment in coal mining will decline by an average of 600 jobs per year over the next two decades.
“A transition away from coal over the coming decades is certain. The only question remaining is whether that transition will be planned and orderly, or chaotic.”
The most recent events which will accelerate the decline of seaborne thermal coal include:
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About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends, and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. (ieefa.org)