While oil and gas producers were busy watching for the evolution of prices and supply and demand fundamentals for their commodities, coal fortunes have been on the rise and are likely to continue so. This is contrary to expectation due to the complex environmental problems of burning coal and the usually higher investment required for its use.

Between 1965 and 1972 world coal consumption rose by hardly 6 per cent while oil and gas consumption rose by almost 70 per cent each. The world seemed to be getting out of coal. Then came the correction of oil prices in 1973, which brought about tremendous changes in energy policies in industrial countries including increased coal consumption. Coal was subsidised or lightly taxed in many countries while oil products were and continue to be heavily taxed. Between 1972 and 2011 oil consumption increased by 58 per cent while coal consumption increased by 146 per cent and gas consumption increased by 189 per cent.

Oil share in total primary energy consumption has been steadily dropping from 47 to 33 per cent between 1972 and 2011. At the same time, coal share rose from 28 to 30 per cent and gas share rose from 19 to 24 per cent.


Even environmental policies and international agreements related to carbon emissions have not reversed this trend though carbon dioxide emission from coal are about 10 per cent higher than from oil and 20 per cent higher than from gas. No wonder then, if current policies continue, coal share in total primary energy consumption is likely to catch up with oil’s. Opec in its World Oil Outlook of 2012 in its energy projections to 2035 says “for most of the projection period, oil will remain the energy type with the largest share. However, towards the end of the projection period coal use reaches similar levels to that of oil.”

The International Energy Agency (IEA) sees even faster growth for coal such that by the end of this decade “coal will be tied with oil as the world’s number one energy source” due to the high demand growth in China and India. The IEA Executive Director Maria van der Hoeven said recently “In fact, the world will burn around 1.2 billion more tonnes of coal per year by 2017 compared to today — equivalent to the current coal consumption of Russia and the United States combined.”

According to IEA, coal consumption in the OECD (Organisation for Economic Cooperation and Development) countries is forecast to experience very little growth from 1,552 million tonnes of oil equivalent (mtoe) in 2010 to 1,578 mtoe in 2035 while the growth in non-OECD countries in the same period if likely to grow from 3,411 to 6,311 mtoe. China’s consumption alone in 2035 is projected to be 3,659 mtoe or 46 per cent of the world’s and India’s consumption is projected at 1,231 mtoe or 16 per cent of world’s. China and India do not have sufficient oil and gas resources while their coal reserves are encouraging consumption of the relatively cheaper coal.

Coal fired power plants

In fact under the pressure of environmental regulations a large number of coal fired power plants are being retired in industrial countries. In Ontario, Canada the end of 2013 will see the end of coal fired power plants. Georgia Power, in the US is retiring many coal fired units by 2015, the effective date of the recently enacted US Environmental Protection Agency’s (EPA) mercury and air toxics standard. These are only examples of what many other companies are doing or planning to do especially in older units that do not lend themselves to environmental standard. New coal fired plants must have emission control equipment to reduce the air toxins. Other companies are replacing lost coal capacity with energy efficiency projects, renewable energy and natural gas. The US Government Accountability Office (GAO) says “coal will remain a major source for domestic electricity for decades to come, but will also provide a smaller share of the national energy portfolio.” But it also said “18 per cent of current coal-fired capacity could be retired by 2035 because of new environmental regulations and lower-priced natural gas.” Russell Ray, the managing editor of Power magazine accused president Obama that his “policies compelled power producers to plan the retirement of 15 per cent of the nation’s coal-fired generation capacity and killed the scope for building new capacity fired by coal.” More is expected in Obama’s current term where the new EPA standard will limit carbon emissions or force the installation of carbon capture and storage.

The US may be in a special situation with abundant natural gas but if other countries follow suit with environmental regulation to reduce the risk of mercury poisoning among other risks then coal fortunes may change. But there is no indicator of such change so far.

The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.