Electricity needs drive coal production in Southeast Asia-
The Southeast Asian coal industry is reverberating with the impact of a supply glut in China. Indonesia, the largest exporter of thermal coal in the world, is witnessing a period of declining production and export levels. Similarly, production growth has almost stagnated in Vietnam and the country is also gradually turning to be a net importer of coal.
While exports are declining, a fresh thrust to the industry is being provided by the escalated power demand in the region due to robust population growth, economic development, and urbanisation. Southeast Asian countries have planned for an unprecedented generation capacity addition, a significant share of which is coal based.
Production trends
Coal production in Southeast Asia has increased significantly in the last decade. Since 2000, the region’s coal output is estimated to have increased by a factor of five. The thrust to production during the period was provided by increasing demand from the large importing countries of India and China.
Country-wise, Indonesia accounts for almost about 90 per cent of the coal produced in the region. According to data furnished by the Indonesian Coal Mining Association (APBI), coal production in Indonesia increased at a compound annual growth rate (CAGR) of 11.26 per cent from 217 million tonnes (mt) in 2007 to 458 mt in 2014. Besides an unprecedented demand surge from China, the rapid expansion in Indonesian coal production was facilitated by high investment in resource extraction and infrastructure.
However, the Indonesian coal industry was hit hard when global commodity prices dropped sharply in 2012-13 amidst slowing economic growth. Since then, on a year-on-year basis, the growth of coal production declined and finally turned negative in 2014, when coal production in the country stood at 458 mt as compared to 474 mt in 2013, marking a decline of about 3.37 per cent.
As per the country’s Ministry of Energy and Mineral Resources, coal production in Indonesia between January 2015 and October 2015 was 322.5 mt. As major coal miners in the country including Adaro Energy, Bumi Resources, and PT Harum have cut coal output in response to persistently low prices, the government has lowered its coal production target for 2015 from 425 mt to 400 mt.
Similar trends are visible across the region. Coal production in Vietnam, the second largest coal producer in Southeast Asia, has been stagnant and hovering around 41-42 mt in the past three years as per the data provided by the BP Statistical Review of Energy 2015. In Thailand, the third largest coal producer in the region, the production declined at a CAGR of 1.64 per cent between 2005-14.
Declining exports
Southeast Asia is a net exporter of coal, with Indonesia at the forefront of the export market. In 2011, it overtook Australia as the world’s largest exporter of coal by weight. In 2014, the country exported almost about 80 per cent of the thermal coal produced in the country. However, at present, exports are following a downward spiral.
Coal exports from Indonesia declined by almost 5 per cent to 382 mt in 2014 as compared to 402 mt in 2013. As per the estimates of APBI, coal exports are expected to fall further to 345 mt in 2015, marking a decline of about 9.6 per cent as compared to 2014.
The repressed global demand is primarily due to the fall in imports to China. In the first half of 2015, Chinese coal imports declined by 37.5 per cent on a year-on-year basis due to the country’s support for domestic producers, strict quality limits on seaborne coal imports, and environmentally driven causes.
In addition to weak international demand, changes in the domestic policy and regulatory environment have also contributed to the decline of coal exports from the country. These include economic policy changes, such as requirements for letters of credit for exports and for conducting business in rupiah rather than the American dollar, as well as more coal sector-specific changes regarding mining taxes, forestry access charges, and rigorous check of coal exporters’ paperwork at ports. Most of these regulations, implemented to control illegal mining, have had a dampening impact on exports. Further, the domestic market obligations for coal, enforced every year by the Indonesian government to ensure coal availability to local buyers, has also had an adverse impact on exports.
Export of coal is on the decline in Vietnam as well, with the country on the verge of becoming a net importer of coal, primarily on account of increased domestic demand. As per the Revised Power Master Plan VII, gross coal imports to the country are likely to increase to 78 mt by 2030 from the current levels of 0.6 mt.
Rising domestic demand
Against the backdrop of decreasing export demand, the domestic demand for coal is rising in response to the growing demand for electricity. The increased domestic demand hinges on economic prosperity which has intensified the need for electrification, the presence of abundant reserves, and the dwindling supplies of natural gas and oil.
In Indonesia, for instance, as per APBI, the domestic demand for coal increased at a CAGR of 3.19 per cent between 2007 and 2014. Similarly, the final coal consumption in Vietnam and Thailand during this period increased at a CAGR of 18.56 and 3.77 per cent respectively, as per BP Statistics.
Going forward, as the economies of the region continue to grow at a rapid pace, the demand for electricity is expected to intensify further. As per the Southeast Asia Energy Outlook 2015, published recently by the International Energy Agency (IEA), electricity demand in Southeast Asia is expected to almost triple between 2013 and 2040, and most of the countries intend to increase power supply primarily through the addition of coal-based capacity.
The share of coal in the region’s power generation is projected to increase from 32 per cent to 50 per cent between 2013 and 2040. Consequently, the demand for coal in the region will more than triple, growing at an annual average rate of 4.6 per cent to become the largest fuel in the energy mix.
The 10-year power development programme (RUPTL) of Indonesia targets a total electricity generation capacity addition of over 70 GW during 2015-24, about 60 per cent of which will be coal based. Given this, the country’s national power utility, Perusahaan Listrik Negara, expects that the domestic coal demand for power generation will increase to 126 mt in 2020 from 64 mt in 2013.
Coal-based generation capacity is also central to Vietnam’s generation capacity addition plans. According to the country’s Revised Power Master Plan VII, the total coal-based power generation capacity is expected to be around 36 GW by 2020 which will further increase to 73 GW by 2030. As a result, the plan document estimates that the domestic demand for coal for power generation will more than double from about 22 mt in 2015 to 48 mt in 2030.
The demand for coal in the Philippines is also set to increase. The country intends to boost its coal-based power generation capacity by more than 25 per cent between 2015 and 2018. A total of 25 coal-based power stations are in the pipeline aggregating a capacity of 12.2 GW. As per industry estimates, 12 power plants with a total capacity of 3.4 GW that are under construction and scheduled to be completed by 2018 will require at least 10 mt of coal annually.
Similarly, in Malaysia, coal-based plants are expected to account for 64 per cent of the total installed capacity in 2020, compared to 45 per cent in 2014, because of an addition to capacity of 5 GW. With this, the annual coal consumption in the country is expected to increase by more than 75 per cent to 40 mt by 2020.
Production and export forecasts
As a result of the strong push and pull factors, coal demand in the region is forecast to increase at a moderate rate of only about 1.5 per cent every year between 2013 and 2040, as per the IEA. Production in Indonesia will continue to rise, but at a much slower pace as compared to the last 15 years. A significant proportion of the increased production will be attained through brown field expansion, while over 150 mt of mining capacity will be added through greenfield project pipelines.
The production of coal in Vietnam is likely to almost stagnate during 2021-30, as per the Revised Power Master Plan VII. It will no longer be sufficient to meet domestic needs. Meanwhile, annual coal production in Myanmar is expected to increase to 5.6 mt by 2030 from about 0.76 mt in 2012.
As for the international market, the Southeast Asian region is expected to remain a net exporter of coal, driven by exports from Indonesia. However, the share of the region’s net exports in international trade coal markets will steadily decline from 29 per cent in 2013 to less than 20 per cent in 2040, as per the IEA.
Summing up
In summary, the domestic demand for coal in the Southeast Asian region is rising to compensate for the shrinking export market. Coal is poised to be the main source of power generation and will overtake oil to become the largest fuel in the regional mix by 2040.
