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Asian coal demand is set for robust revival, study says


John Lehmann/The Globe and Mail/John Lehmann/The Globe and Mail

Global coal markets are depressed amid a supply glut, but reports of the commodity's demise have been greatly exaggerated, a new study says.

Prices for thermal coal, a commodity used by power plants to generate electricity, fell recently to less than $75 (U.S.) a tonne, compared with $190 in mid-2008. And prices for metallurgical (or coking) coal, a key ingredient used in the production of steel, have tumbled to $120 a tonne, from $300 in late 2011.

Some industry observers have warned that there will be many more dark months ahead for the coal industry. But the long-term forecast calls for robust Asian demand, which should give producers hope, as long as they are able to ride out the tough times.

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"Despite increasing environmental opposition to the use of coal, coal still plays a crucial role in the global energy mix and will continue to do so for the foreseeable future," according to a study by Shoichi Itoh, senior analyst at the Tokyo-based Institute of Energy Economics. "The importance of coal use will be all the more important in Asia."

For now, the pain in Canada is being felt on the metallurgical coal side, with Birmingham, Ala.-based Walter Energy Inc. suspending coal-mining operations in northeastern British Columbia and temporarily laying off almost 700 employees, including 415 workers near Tumbler Ridge. Vancouver-based Teck Resources Ltd. has decided to defer additional spending on reviving its Quintette coal property and cut 80 jobs near Tumbler Ridge.

Westshore Terminals Investment Corp.'s Canadian facility south of Vancouver handles mostly metallurgical coal, but thermal coal exports are on the rise at the operation, including shipments of U.S. thermal coal transported by train from the Powder River Basin in Wyoming and Montana.

In the United States, low prices have been especially hard on producers of thermal coal, notably those in the Powder River Basin.

"Minimizing the use of coal would intensify international competition over oil and natural gas," Mr. Itoh said in his paper, commissioned by the Seattle-based National Bureau of Asian Research. "The United States can play a very positive role through increasing coal exports against a backdrop of the shale gas revolution."

U.S. producers want to capitalize on the long-term forecasts of strong Asian demand for thermal coal, with companies proposing coal export sites at Boardman in Oregon and Longview and Cherry Point in Washington state.

"In theory, technologies that improve the efficiency of coal power plants, reduce local pollution, and capture and store carbon dioxide have the potential to make coal use more compatible with environmental objectives, thereby removing a potential objection to U.S. exports," according to a research paper by Mark Thurber, associate director of the Program on Energy and Sustainable Development at Stanford University.

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However, environmental opposition is mounting against proposals to start exporting thermal coal in the U.S. Pacific Northwest.

In Canada, environmentalists are worried that more U.S. thermal coal will flow through B.C. in order to get to Asia. Kevin Washbrook, the B.C.-based director of Voters Taking Action on Climate Change, opposes efforts to boost thermal coal exports, saying the power-generating industry in China needs to be weaned off coal.

"I would prefer that thermal coal wasn't exported from either the U.S. or Canada," he said in an interview.

His group isn't pressing to stop plans for increased shipments of steel-making coal by miners such as Teck, but he is pushing for comprehensive assessments of the health and environmental impacts related to expansion plans by Neptune Bulk Terminals in North Vancouver.

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About the Author

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More


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