How fast will coal be displaced in the EU and the UK?
This week we take a look at the EU and the UK, and its impact on global trade.
Total imports into the EU (excluding the U.K.) totaled 188Mt in 2015, the second highest import on record, only beaten by the 196Mt imported in 2008. However, imports in the first 8 months of 2016 have started on a much weaker note, down about 10% from the same period in 2015.
While there is more than 6,700MW of thermal coal capacity currently under construction, the vast majority of this is in Poland and in the Check republic, where domestically mined coal and lignite will be utilized. The growth in new thermal coal plants relying on seaborne imports is therefore very limited.
Coal demand in the EU is under severe pressure from renewables and other energy resources such as LNG. We will see a huge expansion in the global supply of gas in the next couple of years, and it looks liked the global gas market will become increasingly oversupplied, which will lead to lower gas prices. A lot of that cheap gas will eventually end up in Europe and displace thermal coal demand.
Production of hard coal in the EU has decreased almost continuously from 1990 to 2015, and this long-term decrease has been more severe than for consumption: in 2015 domestic production was only about 26 % of that for 1990 while consumption was 53% of the 1990 level. We do expect coal consumption in the EU to continue to decrease going forward, but as production of coal and lignite within the EU is also falling at a rapid pace, the drop in imports in the next 3-5 years is expected to be far less than the drop in consumption.
The biggest looser this year in terms of negative growth in coal imports is without doubt the UK. Total coal imports in FH-16 of 4.9Mt is down a massive 71% from the 16.9Mt imported in the same period last year. The U.K.’s taxation system is disfavoring coal compared to gas and the UK government has committed themselves to phase out coal by 2025. We therefore expect the UK volumes to continue to be very low going forward. There are seven remaining coal-fired power plants in the UK today.
However, the positive news from a seaborne trade perspective is that the majority of import cuts are already behind us. The current low base means that any further fall in import will only have a marginal negative impact on global trade.