November 12, 2012 / 7:01 AM / 6 years ago

Coal demand to soar in short term, but longer outlook dim -Axa

* GDP growth in emerging markets still linked to coal

* But falling coal quality, environmental to slow growth

* CCS won’t turn coal into a sustainable source of energy

By Henning Gloystein

LONDON, Nov 12 (Reuters) - Global coal demand will soar in the short term as emerging markets rely on it to power economic expansion, but its declining quality and rising environmental awareness will dent demand in the longer term, Axa Investment Managers said.

The asset management arm of life insurer Axa said coal has been the clear winner of the past decade, with supply and demand growing constantly, but warned that the boom of the last decade might not last long into the future.

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

The report said that coal “still has a stranglehold on power generation in developing countries”, where tackling energy poverty is a prime concern, because of its comparatively low cost per energy unit produced.

“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 number of coal sources continues to multiply, but 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.

“Efficiency will not be enough to recoup investments when supplies decrease in quality,” the report said.

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 Jane Baird)

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