IEA (2022), Coal Market Update – July 2022, IEA, Paris https://www.iea.org/reports/coal-market-update-july-2022, License: CC BY 4.0
Worldwide coal consumption in 2021 rebounded by 5.8% to 7 947 million tonnes (Mt), according to our data, as the global economy recovered from the initial shock of the Covid pandemic and higher natural gas prices drove a shift towards coal-fired power generation. Global coal consumption in 2021 rose above 2019 levels, taking it very close to its all-time high and significantly contributing to the largest ever annual increase in global energy-related carbon dioxide (CO2) emissions in absolute terms. Coal use for power generation increased by 7% compared with the year before, reaching 5 350 Mt. Increased industrial output lifted coal consumption in non-power sectors by about 3% to 2 597 Mt.
Coal demand in China, the world’s largest consumer by far, increased by 4.6%, or 185 Mt, in 2021, reaching an all-time high of 4 230 Mt. The Chinese economy grew strongly in the first half of 2021, and we estimate that coal consumption for power generation rose by 16% from the same period a year earlier, which was marked by the first Covid-19 lockdown. In other sectors, coal consumption grew by an estimated 5.7% year-on-year in the first half of 2021. In the second half of 2021, China experienced coal and power shortages, the economy slowed down, and the real estate sector slumped. Consequently, power demand growth slowed and output declined in coal-intensive industries such as steel and cement. For the full year, coal use in power generation increased by 8%, while consumption in other sectors fell by 0.8%.
India consumed 1 053 Mt of coal in 2021, a new all-time high and the largest amount consumed in a single year by any country other than China. Three-quarters of India’s coal demand was for electricity generation. Compared with 2020, Indian coal consumption increased by 12%, or 117 Mt.
Other significant increases in coal consumption were recorded in the United States (+15%) and the European Union (+14%), driven mainly by gas-to-coal switching in power generation as gas prices rose in the second half. However, both US and EU coal consumption in 2021 was below 2019 levels.
In the first half of 2022, global coal consumption was little changed (we estimate a decrease of less than 0.5%) compared with the first half of 2021, with the economic slowdown more than offsetting any demand increase resulting from higher natural gas prices.
Gas prices were already at very high levels at the start of the year, with Russia withholding supply from European markets as geopolitical tensions rose over Ukraine. After Russia invaded Ukraine in late February, global gas prices spiked even higher. This intensified gas-to-coal switching in many countries. However, at the same time, economic growth has slowed considerably in a large number of economies, which is weighing on electricity demand and coal-intensive industries.
For 2022 as a whole, we expect global coal demand to increase by 0.7% from 2021 to about 8 billion tonnes. This would match its all-time peak reached in 2013, but it would be slightly lower than the 8 022 Mt we forecast in Coal 2021 in December because of weaker economic growth. We now forecast thermal coal demand for power generation to increase by 1% in 2022, slightly more than in the IEA’s recent Electricity Market Report, after developments in recent weeks suggest higher coal power generation in India and Europe.
China’s economy, which is responsible for more than half of global coal consumption, slowed down considerably in the second quarter of 2022 amid renewed Covid-19 restrictions. This led to an estimated 3% decline in coal consumption in the first half, most of it in the second quarter. In China’s power sector, we estimate coal demand declined by 3% in the first half amid weak economic growth and a strong increase in hydropower generation. Weakness in the construction sector contributed to lower coal consumption for non-power applications, which fell by 3% in the first half compared with the same period in 2021. In Coal 2021 in December, we forecast an increase in Chinese coal demand for 2022 as a whole, but we now expect it to remain stable around 4 230 Mt. However, this assumes the Chinese economy recovers in the third and fourth quarters from the substantial slowdown in the second quarter.
We estimate an increase of 9% in coal consumption in India in the first half of 2022. This is driven by a 10% rise in coal-fired power generation resulting from the country’s economic growth and expanded electrification, as well as higher cooling demand during a prolonged and severe heat wave. High gas prices also contributed to higher coal demand. In the second half of 2022, coal consumption is expected to remain high, leading to an increase of 7%, or 77 Mt in 2022 compared with 2021.
The European Union’s (EU) coal consumption is estimated to have risen by 10% in the first six months of 2022, driven by the electricity sector’s coal demand, which we estimate increased by 16%. We expect coal consumption to also rise in the second half of the year, pushed up by the need to save gas for winter amid uncertainty over Russian flows. Several countries in the EU (Germany, France, Netherlands, Spain, Italy, Greece, Czech Republic, Hungary and Austria) are extending the lifetimes of coal plants scheduled for closure, reopening closed plants or raising caps on working hours of coal plants to reduce gas consumption. We assume this will raise coal-fired power generation in the second half of 2022 and result in a year-on-year increase in thermal coal demand of about 33 Mt for the full year. Germany will account for the largest additional consumption. In July, the German government created a “gas replacement reserve” with a total capacity of 10.6 GW. It includes 1.9 GW of lignite and 4.3 GW of hard coal power plants, which were already in reserve, and 2.6 GW of hard coal power capacity, which had been scheduled for decommissioning in 2022 and 2023. In total, we expect the EU’s coal consumption to increase by 7% year-on-year to 476 Mt in 2022.
Global coal consumption is currently forecast to be little changed in 2023 compared with 2022, very much in line with the Coal 2021 forecast. Uncertainty, however, has significantly increased since December. Gas and coal markets are expected to remain tight next year and beyond, with developments in Russia’s invasion of Ukraine likely to play a key role in market movements. Global coal demand will be driven primarily by China’s economic growth and, to a lesser extent, India’s. Another uncertainty is the ability of suppliers to increase coal production, which would help reduce prices. We assume global GDP growth of 3.2% in 2023, down from the 3.8% in our Coal 2021 forecast. By contrast, the likelihood that gas prices will decline substantially in 2023 has receded since Coal 2021 was published. Considering all those factors, our forecast is for global coal consumption to increase slightly by 0.3% to 8 032 Mt in 2023. But economic, weather and/or market developments could easily turn this small increase into a decline.
China’s coal consumption is expected to increase by 1%, or 43 Mt, in 2023, assuming China’s GDP growth is lower than in recent years. Given the wide use of coal across the economy, this forecast is subject to many uncertainties, such as economic growth, hydropower output or the evolution of heavy industry.
Coal demand in India is expected to increase further, driven by expanded electrification and economic growth. In our forecast, Indian coal demand grows by 3% to 1 160 Mt in 2023.
The near future for EU coal consumption is very uncertain, given the volatile situation with Russian gas flows. In our forecast, the expansion of renewables and energy saving measures in 2023 are enough to offset expected nuclear power plant closures. Assuming a higher availability of nuclear power plants in France than in 2022, we forecast a decline of 4 Mt in EU coal demand in 2023.