Australian doubt on coal target
China announced a target of capping its total energy demand at between 4-4.2 billion tonnes of "standard coal equivalent" in late 2010, before ratifying its 12th five-year plan for 2011-15. (Standard coal equivalent is a measure of the energy in coal, and assumes a calorific value of 7000kcal per tonne, higher than most Australian or Chinese coal.)
UBS commodities analyst Tom Price said it was already "too late" for China to cap coal use at 4 billion tonnes as in 2012 it consumed 4.05 billion tonnes, counting raw production of 3.8 billion tonnes plus net imports of 227 million tonnes. China's gross coal imports jumped 32 per cent last year, he said.
Mr Price said China's monthly raw coal production statistics did not factor in coal washing, which could reduce yields and increase calorific values. "It will be hard to pin them down on this," he said.
But Mr Price said the National Development and Reform Commission's targets basically called for "flatlining" energy use, an unreasonable forecast because China depended on coal for 80 per cent of its power. "It's highly likely their coal consumption rate will continue to lift by at least a couple of per cent," he said, describing the 4 billion-tonne target as a "nice academic exercise".
One senior energy industry executive based in Australia questioned whether China set an "aspirational target".
The real question, he said, was whether China's leaders were "ever going to ration energy in order to achieve some emissions objective . . . [and] throttle economic growth".
The executive said China was trying to find as much gas as it could, emulating the unconventional oil and gas boom in the US, and was building the world's largest fleet of nuclear power stations.
But China had conflicting policy objectives with tension between the economy, security of supply and the environment. The executive said air pollution was "a much higher priority than CO2, as you'd know if you'd been to Beijing lately".
While much of the media coverage of the recent air pollution in China's north concentrated on emissions from burning coal, about a third of the pollution was from transport fuels and Beijing's electricity came mostly from gas-fired power stations.
"They want to try and put a limit on coal? We'll have to see how they go with that," he said. "There's a long way to go before [China's] coal demand peaks. It's certainly not going to peak in this five-year plan."
IHS McCloskey analyst Bruce Jacques said China was a "swing player" for Australia's export coal industry, which depended on sales to Japan, South Korea and Taiwan.
Frequently Asked Questions about this Article…
China announced a target of capping total energy demand at between 4 and 4.2 billion tonnes of "standard coal equivalent" late in 2010, ahead of ratifying its 12th five‑year plan for 2011–15. The term standard coal equivalent is an energy measure that assumes a calorific value of 7,000 kcal per tonne.
According to UBS commodities analyst Tom Price, China consumed about 4.05 billion tonnes in 2012 (raw production of 3.8 billion tonnes plus net imports of 227 million tonnes), suggesting it was already over the 4 billion‑tonne mark and therefore difficult to cap at that level.
Standard coal equivalent converts different fuels into a common energy metric using a 7,000 kcal/tonne assumption. It matters because this benchmark can make reported consumption look different from raw production figures — and practices like coal washing change yield and calorific values, making monthly production stats harder to compare directly.
No — some analysts and industry executives are sceptical. The National Development and Reform Commission's target effectively calls for flat energy use, but analysts note China still relies on coal for about 80% of its power and that coal consumption is likely to lift by at least a couple of percent rather than stay flat.
China is described as a swing player for Australia’s export coal industry. If China continues to lift coal demand and import volumes (gross coal imports jumped 32% in the year referenced), that can boost export demand. At the same time, China’s policy balancing of economy, supply security and the environment makes future demand and prices uncertain.
China is actively seeking more gas—emulating the unconventional oil and gas boom in the US—and is building a very large fleet of nuclear power stations. However, the article notes these moves exist alongside continuing coal dependence and conflicting policy objectives, so coal is unlikely to peak during this five‑year plan.
Air pollution is a high priority for Chinese policymakers, often ranked above CO2 concerns. While media focus on northern air pollution has emphasised coal emissions, the article notes roughly a third of pollution comes from transport fuels and that Beijing’s electricity is largely supplied by gas‑fired stations.
Investors should track China’s coal production and import volumes, NDRC and five‑year plan policy signals, changes in reported calorific values or coal washing practices, and China’s moves into gas and nuclear. These indicators, together with demand patterns in other Asian buyers like Japan, South Korea and Taiwan, can signal shifts in export demand for Australian coal.
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