Despite a decline in global coal demand for the second consecutive year, international steam coal prices doubled in 2016. This massive rise may seem paradoxical; in fact, it responded to market fundamentals: a tightening of the international market due to an unexpected surge in Chinese coal imports and the inability of exporters to meet this sudden increase. The surge in Chinese imports was not due to increasing demand – Chinese coal consumption in 2016 fell for the third year in a row– but to domestic production restrictions mandated by the Chinese government from April 2016. To remove excessive and outdated capacities in the domestic coal sector, that weighed on domestic coal prices, the government required coal mining companies to cut operating days from 330 to 276 a year. The new regulation led to a fall in coal production, shortages of coal and a steep increase in domestic coal prices, forcing power utilities to turn to the international market. However, after five years of low prices and reductions in investment, exporters were not able to respond to this sudden demand and international prices increased to clear the market.
CEDIGAZ, the International Association for Natural Gas Information, has just released its « Medium and Long Term Natural Gas Outlook 2017 ». This scenario, which incorporates national energy plans, highlights the growing role of natural gas as a key transition fuel towards an increasingly renewable-based, efficient and sustainable energy system. In this scenario, natural gas demand is expected to rise by 1.6%/year over 2014-2035 and its growth in absolute terms will outstrip that of all other energy sources. The strong expansion of LNG supply and the abundance of both conventional and unconventional resources will help gas to expand its role in the energy mix to the detriment of coal and oil. In a context of increased globalization of gas markets and diversification of natural gas supply, spot pricing will be a growing component for the commercialisation of gas. Many countries have policies that should favor gas consumption over other hydrocarbon sources, especially in the power sector. Coal-to-gas switching contributes to a strong decline in the future growth of carbon emissions. However, this will not be enough to reach the +2°C target: emissions in the Cedigaz scenario would put the world closer to a +3°C path.
Highlights from the latest update of Cedigaz’ Worldwide UGS Database.
Only 25 bcm of working capacity is under construction
The capacity currently under construction is limited. At worldwide level, there are 48 storage projects under construction adding 25 bcm of working capacity. This includes only 15 new storage sites (12 bcm) and 33 expansions (13 bcm). Again, this is lower than last year’s report (58 projects adding 36 bcm of working capacity) and previous ones. This is partly due to the commissioning of storage facilities in 2016, but also to cancellations of projects. Most of the projects under construction will be completed by 2020/25. All regions, but Central and South America, participate in the additions to storage capacity currently under construction. It is worth noting that Europe ranks first, but capacity under construction is concentrated in Italy, where the storage regulation is much more favorable than in other European countries. The CIS ranks second with expansions and new facilities built in Russia. The Middle East and Asia-Oceania account for 23% and 18% of the world additions. The shift of storage investment to new emerging and growing gas consuming countries started at the beginning of the 2010s and is expected to dominate the next 20 years. The additions to withdrawal capacity are dominated by Europe reflecting the focus towards highly flexible storage in the region.