James K ENDELL Vice President, APERC

1. The 54th Meeting of APEC Energy Working Group (EWG)Wellington, New Zealand, 22-23 November, 201713.b. APEC Coal Market Report James KENDELL Vice President, APERC

2. Global coal consumption and economic growth Nearly 75% of global coal consumption occurs in APEC member economies Note: BP Statistical Review of World Energy 2017 lists 19 out of 21 APEC members. The other two APEC members that are not listed are Brunei Darussalam and Papua New Guinea which, based on ESTO data, do not consume any coal. APEC and global coal consumption, 1985-2016 Coal consumption in APEC, 2000-2014 Source: BP (2017) and ESTO (2017). • APEC coal consumption increased by 19% in 2016 from 2005 level. • Despite global economic crisis in 2008-09, coal demand continue increased until 2014. • In 2014, China accounted for two-thirds of total APEC coal demand, double 2005 levels. • South East Asia has been the other major contributor to increased coal demand in APEC. • US coal consumption declined by more than 22% from 2005to 2014

3. Coal power plant by technology type in APEC Subcritical coal power plants continue to dominate APEC’s power market Note: Only capacity that is in commercial operation, mothballed or on standby is considered in the analysis Source: Platts (2016) and APERC analysis • Advanced coal technologies (ultra- and supercritical) are gaining market share. • More than 80% of the advanced coal power plants are located in China. • Emerging economies started to deploy advanced coal power plants after 2012.

4. Coal demand in iron and steel industry Rapid economic growth increased iron and steel demand in developing economies Private vehicle ownership in China and breakdown by province, 2000-15 Iron and steel production and coal use, 2005-14 Source: NBS (2017), WB (2017) and APERC analysis. Source: World Steel Association (2016) and ESTO (2017) • Coal consumption for iron and steel production in APEC doubled in a decade • Financial crisis of 2008-09 affected US iron and steel production hugely but not in Asia.

5. Coal demand in cement production Cement production in APEC may slow down in the future Cement production and coal consumption in APEC, 2005-15 New floor space completed in China, 2005-16 -2% annual growth 11% annual growth Source: NBS (2017) and APERC analysis. Source: USGS (2017), ESTO (2017) and APERC analysis. • Cement production doubled while coal consumption for cement making increased by nearly 20% from 2005 level. • New floor space completed in China slowed down in past two years. Sign of cooling real estate market?

6. Outlook for power sector Growth in Asia will continue to sustain thermal coal demand in APEC Note: APERC projection was made in 2016 by using IEA 2014 historical data. Other APEC Northeast Asia – Hong Kong, China; Japan; Korea and Chinese Taipei. APEC Southeast Asia – Brunei Darussalam; Indonesia; Malaysia; Philippines; Singapore; Thailand and Viet Nam. Oceania – Australia; New Zealand and Papua New Guinea. Other APEC Americas – Canada; Chile; Mexico and Peru. Source: IEA (2017) and APERC (2016). • China’s coal consumption in power will increased at a very slow pace compared with previous decade as more regulation is introduced by the government. • Coal capacity in Southeast Asia is expected to expand rapidly.

7. Outlook for industrial sector Developing Asia expected to use more coal in industrial sector Note: APERC projection was made in 2016 by using IEA 2014 historical data. Source: IEA (2017) and APERC (2016). • China and Southeast Asia economies are projected to record growth in industrial sector coal consumption while other APEC members are flat.

8. Coal price outlook Thermal coal spot price, 2016-2017 Thermal coal price, which rose to more than US$110/tonne earlier this year, dropped to about US$70/tonnecurrently and is expected to increase again after 2018, partly because of export reduction from Indonesia. Source: globalCOAL (2017) Australian Premium hard coking spot price, 2010-2017 Metallurgical coal prices, which have been rising recently, will enter a downward trend in the immediate future, but stop falling when supply and demand reach a balanced level. After that, they are expected to level off or increase gradually. Source: IHS (2017)

9. Thank you for your kind attention

10. Coal consumption and production by regions (2016) Different trends can be seen among regions around the world Source: BP (2017). • Other than APEC economies, South Asia showed a strong coal demand (doubled 2005 level) • Europe’s coal consumption declined by nearly 20% from 2005 level.

11. Global coal trade flow 2015 APEC members are among major coal importers and exporters. Source: IEA (2016) and IEEJ analysis. • Nearly 90% of APEC’s coal imports were sourced within APEC region. • Indonesiaand Australia were world’s largest coal exporters in 2015.

12. Coal demand in powerand heat sector Coal demand trend in Asia and North America due to prices, resources and policies. Source: ESTO (2017). • Coal share in power mix barely moved for the past 15 years : 56% - 59%. • Renewables and natural gas becoming fuel of choice in many economies.

13. Coal production flattening out in China and decreasing in the US APEC total coal production APEC total coal production growth stalled post-2011 Source: ESTO (2017) • Coal production in the China decreased by 2% in 2014 compared with 2013 level. • Compared with the 2011 level: • US coal production decreased by 11%; • Australia, Indonesia and Russia increased their coal production by 20%, 23% and 14% respectively, mainly for export,

14. Coal production in China Coal production in China are concentrated in a few provinces Source: ESTO (2017) and NBS (2017) • Lignite and other bituminous coal production peaked in 2011 while coking coal continued to increase. • Despite the effort of Beijing government to tackle air pollution issue by shutting down coal power plants and mines, most major coal mines are located in the nearby provinces – Shanxi, Hebei and Shandong

15. Coal production in the US Wyoming and West Virginia continue to dominate coal production in the US Source: EIA (2017), ESTO (2017) and APERC analysis) • Coal production in the US in 2014 never recovered to pre 2008-09 financial crisis levels, decreased by 16% from 2008 level. • Despite that, coking coal production increased by 26% from 39 Mtoe to 49 Mtoe.

16. Coal production Australia Queensland and New South Wales continue to be the major coal producers in Australia Source: ESTO (2017), Department of Industry, Innovation and Science of Australia (2017) and APERC analysis • Both thermal and metallurgical coal production continued to increased as demand in developing Asia economies soared. • Besides APEC members, India is another major importer of Australian coal.

17. Coal trade in APEC APEC members have been the major source of coal imports and exports Source: ESTO (2017) and UN Comtrade (2017). • In 2014, APEC members imported 435 Mtoe of coal, of which 80% came from APEC producers. • At the same time, APEC coal producers exported 656 Mtoe of coal, of which about 60% went to APEC consumers.

18. Coal trade in APEC - South East Asia Proximity of Indonesia to other South East Asia economies gives advantage to both importer and exporter Source: ESTO (2017), UN Comtrade (2017), Platts (2016) and APERC analysis • Most South East Asia economies relied to Indonesian coal as they expanded their coal generation capacity. • Recent Indonesia policy under the RUEN to limit coal exports may pose a challenge for importers in the future.

19. Russian coal export destination Russia coal export to Pacific region increased, in line with government targets Source: UN Comtrade (2017) and Ministry of Energy of the Russian Federation (2015). • Coal export to existing market such as Japan, Korea and Chinese Taipei tripled from 2005 level. • Export to China started to expand rapidly in 2011 and new market (Malaysia and Viet Nam) in 2013.

20. Other notable development • Despite being a coal importer, Chile’s biggest coal mine in the southern region produces and exports coal to India. In 2016, Mina Inviernom, the coal mining company that developed the mine, produced 2.3 million tons, down from 4 million tons in 2014 because of low coal prices. Most of the coal produced from this mine was exported to India. • The Papua New Guinea Mineral Resources Authority (MRA) has been active in trying to develop all resource types, including coal. In 2015, the MRA allocated $3 million for research into the viability of coal exploration and extraction. Among areas that have been actively explored is the Sepik Coal Basin, located in the northern PNG (MRA, 2017). An Australian company has proposed building three mixed coal power generation plants in the economy by using coal extracted from these fields (Mongabay, 2017). However, based on the feedback given by the economy, the project has been put on hold and there are no on-going or completed activities resulting from this proposal.

21. Production outlook Source: APERC/IEEJ analysis

22. Coal trade outlook – Thermal coal import Source: APERC/IEEJ analysis

23. Coal trade outlook – Metallurgical coal import Source: APERC/IEEJ analysis

24. Coal trade outlook - Thermal coal export Source: APERC/IEEJ analysis

25. Coal trade outlook - Metallurgical coal export Source: APERC/IEEJ analysis