RPT-UPDATE 1-Coal demand to rise short-term, fade further on

Mon Nov 12, 2012 4:00pm EST

(Repeats story published late Monday; no changes to text)

* Coal share in primary energy demand to fall 3 pct by 2035 - IEA

* China's coal demand to peak in 2020 - IEA

* GDP growth in emerging markets still linked to coal - AXA

* Falling coal quality, environmental concerns slow growth - AXA

By Henning Gloystein

LONDON, Nov 12 (Reuters) - Global coal demand will rise in the short-term as emerging markets rely on it to power economic expansion, but its share in primary energy demand will fall by three percent to under 25 percent by 2035, two reports published on Monday said.

The International Energy Agency (IEA) said in its World Energy Outlook that although coal would remain the world's leading fuel for power generation in the next two decades, its share would drop, mainly losing out to rising demand for natural gas and renewables.

"While coal's share of global primary energy demand falls by nearly three percentage points to less than 25 percent in 2035, coal remains the second most important fuel behind oil and the backbone of electricity generation," the report said.

"Global coal demand grows by 0.8 percent per year to 2035, with growth slowing sharply after 2020 as recently introduced and planned policies to curb use take effect."

The IEA said that China's coal demand would peak around 2020, by when it would make up half of global coal demand, and would plateau at that level until 2035.

"By 2025 India overtakes the United States to become the second largest coal user. By contrast, almost all major OECD regions see their coal use decline, especially Europe, where demand in 2035 is 60 percent of the 2010 level," the report said.

The IEA said that most major coal producers, including China and the United States, see their production slow or even decline.

"OECD coal output starts to fall around 2020 and is 10 percent lower in 2035 than in 2010, with declines in Europe and North America offsetting growth in Australia. Non-OECD production carries on rising through 2035. In China, the world's biggest producer, rapid output growth slows around 2020, reaching nearly 20 percent above the 2010 level by 2035."

COAL QUALITY DROPS

Axa Investment Managers said that declining coal quality and rising environmental awareness will dent coal demand in the longer term.

The asset management arm of life insurer Axa said coal has been the clear winner of the past decade, but warned that the boom might not last long.

"Coal has a bright future in the short term, but that will not last long in our view," Axa said in a report also published on Monday.

"From the standpoint of energy security, coal-fired units remain a winner thanks to the widespread availability of the primary resource."

The chief executive of the World Coal Association said that economic growth and coal markets remained closely linked.

"No one has been able to delink the growth of GDP from the growth of energy, and coal in particular," association CEO Milton Catelin told Reuters.

But coal has a competitive edge over fuels such as natural gas only as long as pollution control regulations are light, Axa said, adding that environmental awareness was rising fast in emerging markets.

"For the next round of rapidly growing economies, the incentive bias towards coal will be shorter-lived than expected (and) stricter pollution controls may render many new coal-burning installations obsolete," the study said.

"Current air pollution regulations will rapidly prove insufficient to keep populations and agriculture from suffering from the social costs associated with coal."

Axa also said growth in the coal sector was threatened by the falling quality of the mined product.

"The quality of reserves is decreasing. This represents a major long-term risk," the report said.

The Global Coal Association said, however, a rise in energy efficiency of new coal-fired power stations could address this issue.

"Coping with degrading quality could actually be a godsend as it would provide the incentive for much-needed upgrades in coal-fired power plants," Catelin said.

The Axa report disagreed, warning that efficiency gains would be limited as a result of the decreasing trend in global coal supply quality.

Axa also said that carbon capture and storage (CCS) technology, which would capture CO2 produced from power plants before it enters the atmosphere and store it underground, would not be able to improve the environmental footprint of coal-fired power stations.

"CCS will not turn coal into a sustainable source of energy for power generation. The polluting effects of coal are not limited to CO2 alone. CCS technologies are energy-intensive and could take decades to mature." (Reporting by Henning Gloystein; editing by William Hardy)