Coal will remain the main fuel for electricity generation globally, according to a new report from the IEA Clean Coal Centre.
Hermine Nalbandian, senior research scientist, and Nigel Dong, energy strategy researcher, IEA Clean Coal Centre, argue that, although coal’s share of the total electricity generation will fall, the resource will remain the main fuel for electricity generation globally.
Coal and gas competition in global markets
In 2010, global consumption of commercial energy totalled 18 billion t of coal equivalent. With a 28% share, coal ranked second after oil as one of the major sources of primary energy and natural gas, at 21%, ranked third. Gross power generation with coal was approximately 41% and gas 22%.
It is estimated that there are over 847 billion t of proven coal reserves worldwide. At current production rates, this equates to roughly 118 years availability. Proven gas and oil reserves are equivalent to around 59 and 46 years, respectively, at current production levels. Coal reserves are available in almost every country in the world, with recoverable reserves in about 70 countries. The largest reserves by region are in North America, Russia and Eastern Europe, China, Australia, India and Germany.
Estimates show large reserves of natural gas throughout the world. However, it is very difficult to estimate exactly how much natural gas remains underground. New technologies are being developed to ease production and provide greater accuracy in exploration. Recent estimates show that most of the world’s natural gas reserves are located in the Middle East, the Russian Federation, and Europe, with these reserves making up nearly 75% of total worldwide reserves. Approximately 16% of the reserves are located in Africa and Asia and another 4% in Central and South America. The US makes up almost 4% of the reserves.
Technological advances in natural gas extraction
The natural gas industry has been able to keep pace with growing demand and produce greater amounts of natural gas through technological innovations. These innovations have enabled the development of natural gas from shale and other formerly ‘unconventional’ formations that are found in abundance across the world, as well as development from traditional offshore and onshore formations. Technological innovation in the exploration and production sector has equipped the industry with the means and practices to increase the production of natural gas to meet rising demand. These technologies aim to make the exploration and production of natural gas more efficient, safe and environmentally friendly.
Global coal production vs production of natural gas
World coal production reached 7.2 billion t in 2010 (6.2 billion t of hard coal and 1.0 billion t of lignite). The production of hard coal comprised 5.3 billion t of thermal coal and 0.9 billion t of metallurgical coal. In 2011, coal production reached a record level of 7.678 million t increasing by 6.6% over 2010. The annual average growth rate of coal production since 1999 was 4.4%. Global hard coal trade amounted to over 1 billion t, or 14.8% of world coal production of 7.2 billion t. Two thirds of all coal produced worldwide is delivered to power plants, or 90% in the case of lignite. Global coal production grew by 6.1% with non-OECD countries accounting for virtually all of the growth and China accounting for 69% of the global growth.
Global production of natural gas in 2011 amounted to >3000 billion m3. Unconventional gas in the form of shale gas and coalbed methane are expected to account for 63% of North American production by 2030. Sustained growth of shale gas raises the prospect of liquid natural gas exports from North American by 2030 – 0.14 billion m3/d. Outside North America, unconventional gas is currently in its infancy but likely to play a growing role in the long term as current technical and regulatory hurdles recede. In Europe, major unconventional production before 2020 is not expected. The decline in conventional supply implies a growing import requirement for Europe, up by more than ^0%, from 0.77 m3/d in 2010 to 1.19 m3/d in 2030. In China, gas production is expected to grow at 6.1%/y. Although coalbed methane and shale gas are expected to contribute 46% to growth, an increasing need for imports is forecast. These are expected to be met by expansion of liquid natural gas and pipeline projects.
Coal met 45% of the rise in global energy demand between 2001 and 2011, growing faster even than total renewables. The main driver was the strong growth in non-OECD countries, particularly China and India. Coal fuels more than 40% of the world’s electricity and is expected to remain the backbone of global electricity generation mix, regardless of climate change policy. Despite the increase in coal consumption in absolute terms, coal’s share in the world’s electricity generation is expected to decrease gradually as many governments are set to promote generation from renewables, nuclear and natural gas. Demand for natural gas has been following a consistent upward trend since the mid-1980s, except for a dip in 2009. Again, non-OECD countries have largely contributed to the growth, which overtook OECD countries in aggregated gas demand since 2008. Natural gas provides around 22% of the world’s electricity and use for power generation will be the major driving force for future growth in gas demand worldwide. Nevertheless, its share in the electricity generation mix is expected to increase only slightly due predominantly to high prices.
Historically, natural gas has been more expensive than coal on an energy equivalence basis. The price of both fuels has been more volatile over the last decade. Worldwide, coal prices have rebounded strongly after a collapse in 2009, following the historic high levels seen in the summer of 2008. In contrast, gas prices only rebounded markedly in Europe and the Asia-Pacific, while remaining low in North America. There has been a convergence between domestic and international coal markets, in which domestic coal prices are linked to international prices. Consequently, demand from China and, potentially, India may cause large swings in international coal prices. In the natural gas market, it emerges that gas prices are divorced from those of oil and instead are linked to spot gas prices at trading hubs. This change in the pricing mechanism will certainly increase the volatility of gas prices, but may also lead to lower gas prices provided that ample supplies are available. Increased price volatility will influence the relative competitiveness of coal versus natural in power generation, as captured by the spread measures. As such, a utility needs to use the spread tool to decide on what type of generation to operate on a day-to-day basis, or to assist in their planning for new capacity.
In summary, coal remains the main fuel for electricity generation globally and its use is forecast to continue to rise in absolute terms. However, its share of total generation is expected to fall while the share of gas is expected to increase, especially in North America.
Hermine Nalbandian is a senior research scientist and Nigel Dong is an energy strategy researcher at IEA Clean Coal Centre. The full report is available from the IEA Clean Coal Centre Bookshop.