Forty world leaders are expected to meet in a virtual summit on climate change today, hosted by the United States. The summit is the latest signal that international and domestic pressure is increasing on the Federal Government to strengthen its action on climate change. Australia’s resistance to stronger climate action has been partly attributable to its major fossil-fuel-based industries, particularly the Coal Mining industry.
Coal is expected to remain Australia’s second largest resource export by value in 2020-21, with Australia being the world’s largest exporter of metallurgical coal and second largest exporter of thermal coal. Metallurgical coal is used to produce coke, which is used by steel makers, while thermal coal is used to generate energy in coal-fired power stations. There are over 100 coal mines in Australia, with the industry employing over 30,000 people.
‘The Coal Mining industry has been an important contributor to the Australian economy, generating over $275 billion in export revenue over the past five years,’ said IBISWorld Senior Industry Analyst James Thomson.
Export focus
Australia’s Coal Mining industry is heavily dependent on export markets, several of which have committed to notable emissions reduction targets in the past year. Export markets are expected to account for over 90% of Australian coal mining revenue in 2020-21.
‘Thermal coal exports are expected to come under threat from increased competition from gas and renewable energy sources as more countries introduce net zero emission targets. In late 2020, Japan and China, Australia’s two largest export markets for coal, announced plans to achieve net zero carbon emissions by 2050 and 2060 respectively,’ said Mr Thomson.
Coal exports have also come under threat from trade tensions between Australia and China, with China placing unofficial restrictions on imports of Australian coal in late 2020. This has created additional headwinds for Australian coal producers, who have already been faced with falling coal prices amid the COVID-19 pandemic. According to the International Energy Agency, global coal demand fell by approximately 5% in 2020.
‘The domestic price of black coal declined by 20.9% in 2019-20, and is expected to fall by a further 29.4% in 2020-21. Low prices have prompted some mines to be placed into care and maintenance. Coal exports are expected to fall by over 30% in 2020-21,’ explained Mr Thomson.
Overall, coal mining revenue in Australia is expected to fall at an annualised 3.8% over the five years through 2020-21, to $40.5 billion. This includes a revenue decline of 34.2% in the current year. This decline has largely been driven by falling prices rather than production volumes.
Coal power still accounts for over a quarter of global electricity generation and over half of Australia’s electricity generation. While coal power is expected to fall as a share of the global energy mix over the next decade, Australian coal production is forecast to grow over the next five years. According to the Office of the Chief Economist, growth in thermal coal production is projected to outpace growth in metallurgical coal production. However, this is partly due to the greater decline in thermal coal production due to the COVID-19 pandemic. Thermal coal production is expected to grow by 11.6% in 2021-22 as demand conditions stabilise.
‘Thermal coal’s place in the global energy mix is projected to come under increasing pressure over the next decade,’ said Mr Thomson.
Coal mining outlook
The long-term outlook for coal producers is uncertain. While exploration expenditure on coal increased by 26.2% in 2020, benefiting operators in the Mineral Exploration industry, volatility in prices due to the COVID-19 pandemic and uncertainty in the regulatory environment have created some headwinds for coal project development. While some major mines are set to close over the next few years as they reach the end of their productive life, there are currently over 70 coal projects in various stages of development in Australia. This includes both the expansion of existing projects and the development of new projects.
Although coal power generation is declining in many parts of the world, demand for thermal coal is forecast to remain robust in the short term. According to the Global Energy Monitor, China has 88.1 gigawatts of coal-fired power generation under construction, with a further 158.7 gigawatts in various stages of planning, while India has 36.6 gigawatts under construction.
‘Despite the shifting focus towards renewable energy sources, coal will remain part of the global energy mix and continue to be an important contributor to the Australian economy for years to come,’ said Mr Thomson.
IBISWorld reports used to develop this release:
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Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
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Email: mediarelations@ibisworld.com
