Cheap shale gas is significantly reducing coal demand in the United States, but global coal consumption is still expected to rise 2.6 percent annually by 2017, the International Energy Agency said today in a report.

Coal consumption will climb to 4.32 billion tons of oil equivalent by 2017, nearly matching oil consumption of about 4.4 billion, the Paris-based agency said in its first Medium-Term Coal Market Report.

"Coal's share of the global energy mix continues to grow each year, and if no changes are made to current policies, coal will catch oil within a decade," said Maria van der Hoeven, IEA's executive director.

Demand for coal rose 4.3 percent last year, with China accounting for 67 percent of the increase and replacing Japan as the largest importer, the report says. Coal demand and carbon dioxide emissions from coal will continue to increase unless climate change policies are introduced, the IEA said.

Countries outside the Organisation for Economic Co-operation and Development are expected to drive growth with an annual increase of 3.9 percent. Within the OECD, coal use will drop by 0.7 percent a year, led by a 2.5 percent drop in U.S. demand per year to 600 million metric tons in 2017, the IEA said.

"Coal demand never stropped growing in the financial crisis and despite aggressive climate policies in many places," van der Hoeven said in a teleconference with journalists. "The only significant decline in coal consumption globally was in the United States, and the reason is cheap gas."

India and China lead expanded use

Total world consumption of coal will be 6.17 billion tons in 2017, up from 5.28 billion last year, the report forecasts.

"The impact of the coal-to-gas switch in North America is so significant that for the first time since China's rise, the medium-term growth rate in coal consumption will fall below the growth rate of gas," van der Hoeven said.

The world will burn around 1.2 billion more tons of coal per year by 2017 compared to today, equivalent to the current coal consumption of Russia and the United States combined. China will account for 70 percent of the growth in coal demand over the next five years, while India will make up 22 percent, the report says.

"India becomes the second-largest coal consumer and the largest coal importer in the world," van der Hoeven said. "Together, by 2017, China and India represent more than one-third of global coal imports and two-thirds of global coal demand. It's clear that the Chinese and Indian coal market decisions will have an impact on our electricity bills."

India's coal demand will increase by 6.3 percent per year to 643 million tons by 2017, IEA said. Australia will become the world's largest coal exporter by 2017, shipping 356 million tons of coal equivalent, the report says.

The U.S. shale gas revolution led to more exports of coal from the United States, reducing prices. In turn, this caused an increase in coal use in Europe, but the IEA expects this to stop in 2013 and slowly decline after that.

"At current gas, coal and CO2 price levels, most of the possible coal-to-gas switches have already occurred," said Keisuke Sadamori, director of energy markets and security at IEA. "Coal capacity will dwindle and renewables will replace coal in the U.S. and Europe. Retirement of old capacity will occur on schedule, while construction of new coal capacity may be delayed or canceled."

Higher carbon price needed to slow coal

The coal infrastructure and capacity for exports are saturated in the United States, said Carlos Alvarez Fernandez, one of the authors of the IEA report. "There are some expansion plans for mines in progress, but they will take some time to come online," he said.

Meanwhile, coal power plants are being built at a quick rate in China and India, the IEA said. The Chinese ones are for the most part built with the latest technology to capture polluting particles, while the picture in India is more mixed, said Laszlo Varro, head of IEA's Gas, Coal and Power Markets Division.

Current climate regulations have had no effect on coal production or coal use, van der Hoeven said.

"It will take a lot of time and a lot of regulations to really see coal consumption turn around," she said. "A higher carbon price would play a role to change the competitive picture."

"The U.S. experience shows that a more efficient gas market, with flexible pricing and fueled by indigenous unconventional resources that are produced sustainably, can reduce coal use, CO2 emissions and consumers' electricity bills without harming energy security," she added.

Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC. www.eenews.net, 202-628-6500