Making sense of trends and data

Considering Coal

Updated 11.30.2015
A brief survey of recent items on fossil energy production.

Electric vehicles still emit carbon

Electric vehicles are still powered with fossil fuels because most of the world's electricity is still generated with coal. However, if the pollution source is centralized, technology to mitigate carbon emissions could be deployed. And alternative power generation continues to grow.

As goes China, so goes coal

The institute said China's coal consumption had fallen 5.7 percent from January to September. In the U.S., domestic consumption was down 11 percent and coal's share of the electricity market has fallen to 35 percent, from 50 percent a decade ago. Record-low U.S. gas prices, record expansion of renewable energy and a decoupling of electricity demand from economic growth are "permanently eroding" coal demand in the U.S., the Cleveland, Ohio-based IEEFA said.

Still, coal provides more than 40 percent of the world's electricity and 29 percent of its energy supply, second only to oil at 31 percent, according to the Paris-based International Energy Agency. The agency projects coal consumption to continue growing somewhat in coming years, largely owing to increased coal demand in India and Southeast Asia.

Coal still provides of the fuel for China's power plants, even as the country becomes a leader in renewable energy, particularly solar.

Oil prices will stay low for longer.

There remains a glut of oil in the world's market.

Prospects for relief appear questionable, Ahn said. “Since last year’s dramatic price declines, production has been relatively robust,” he said. “We may need more time for prices and supplies to be balanced, which also has had any interest effect on demand. In the past decade, China and other emerging markets have been driving most of the demand growth while producing nations have benefited economically. Now, that is moving in the opposite direction as demand has fallen and producers have tried to limit output.”

Venezuela, Nigeria, and other producing countries have not made significant progress in reducing or eliminating subsidies for consumers despite lower crude prices providing an opportunity to do so, Chang said. “A second question involves incentives for investment, such as in Mexico where they haven’t gone quite as well as expected after several decades of not even being available,” she observed. “The ability to increase production in places like Iraq and Iran also needs to be addressed before the necessary financing can become available.”

Despite the glut, US oil producers want to produce more.

Did the Saudis stumble?

This author argues that the Saudis misread the slow down in China. They thought that the price of oil would only fall to $80/barrel and wouldn't stay there for long. But it took until the price was steady at less than $50/barrel before the shale frackers in the US scaled back and the arctic drilling packed up shop. The claim is that the Saudis can produce oil at $10/barrel, but need a price greater than $95/barrel to balance their books.

In one sense it worked. The American fracking industry is scaling back, the exploitation of Canada’s oil sands has slowed, and many arctic drillers closed up shop. And, indeed, countries like Venezuela, Ecuador, and Russia took a serious economic hit. But despite obvious signs, the Saudis failed to anticipate China’s economic slowdown and how that would dampen economic growth in the leading industrial nations. The price of oil went from $115 a barrel in June 2014 to $44 today. Because it is so pure, it costs less than $10 to produce a barrel of Saudi oil. 

The Kingdom planned to use its almost $800 billion in financial reserves to ride out the drop in prices, but it figured that oil would not fall below $80 a barrel, and then only for a few months. 

According to the Financial Times, in order to balance its budget, Saudi Arabia needs a price of between $95 and $105 a barrel. And while oil prices will likely rise over the next five years, projections are that price per barrel will only reach $65. Saudi debt is on schedule to rise from 6.7 percent of GDP this year to 17.3 percent next year, and its 2015 budget deficit is $130 billion.

However, based on this analysis, the Saudis don't need to panic yet, even as oil prices remain low. They can borrow money internally, and do not need to come to the markets.


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