Canada as a nation has chosen to phase out coal for creating electricity. Since 2016, as part of the Powering Past Coal Alliance with the U.K., it set a date in 2030 to no longer use coal as a base to develop electricity.
For Canada, it means finding new sources to fuel electricity generation for the space that coal uses at 11 percent. Presently, plants that use coal have produced 72 percent of Canada’s greenhouse gas emissions.
Nothing to lose
As the industry winds down, job loss becomes inevitable. The coal produces sulfur dioxides, mercury pollutants and nitrogen oxides which must be eliminated from the air. Worse, the pollutants cause respiratory ailments and deaths. The government estimates that over 50 years it will gain $1.2 billion in health benefits by simply keeping the air clean by eliminating coal. New jobs in the clean energy sector in 2016 added 56,000 jobs, a 1.3 percent rise in gross domestic product and $25.4 billion in funding. In the energy sector, the decline of the coal industry will be offset by the rise of the clean energy sector companies.
Export development bank
The coal plant executives for electricity have had three years to think about it. As promised, the export development bank of Canada (EDC) announced in January that it will get out of the coal business for electricity entirely. The agency generally helps companies across the provinces. With the announcement of anything to do with thermal coal will not get funded the reality hit that the phaseout had teeth.
The warning monetarily came sooner with the reduction in funding and support in 2017 for thermal coal projects in Canada. The EDC left funding for coal projects that exported to other countries. With the recent phase-out of the Ontario plants, the percent of electricity created by coal dropped to 10 percent.
Defining what coal will do
The coal industry has a portion of its coal enterprise disappearing, but metallurgical coal will remain a viable option. Alberta and British Columbia provinces have become most affected since they produced much of the coal. What types of coal exist list as thermal coal and metallurgical coal. It has not been defined yet if thermal coal will be exported to other countries for use since much of it had domestic use. The Paris Accord many countries declared their limited use of thermal coal.
Metallurgical coal, on the other hand, will most likely increase export and possibly do domestic production. Metallurgical coal is processed to become coke which is then used to create steel. Analysts see no significant decrease in the global economy. Presently, Canada exports of coal in 2017 came in at 93 percent for metallurgical coal. Canada fuels Asian markets with its coal exports.
Coal globally
The Institute for Energy Research (IEA) has a report it releases annually. As of 2018, coal provided 27 percent of the total global energy. Coal provides 38 percent of the global electricity generation. It has held the latter position since 1998, so the world truly has been moving away from coal. Emerging economies often make coal plants to continue development.
Though the numbers change in each country overall not much progress getting off coal has occurred overall. Credible Carbon has a forecast and executive summary. It states that the global coal market will remain stable until 2023. As North America and Europe decline in use of coal Indian and Asian countries will increase.
Renewables and natural gas have begun to make headway into the markets. Canada shows a way to accelerate that growth. Analysts predict a decline from 27 percent to 25 percent in the coal markets. As the demand for coal goes up and its production goes down so will the price.
Investment
For the short term, coal may be an investment for veterans who know how to play the global markets in such industries and scenarios. Despite higher pricing, new investment has not happened. Instead, either expansion of coal operations or purchases of producing assets with improvements has been invested in. Advanced economies have continued to have coal enterprises. For example, China continues to develop coal. Analysts predict that by 2020 the new development even in China will slow down.
In Canada, a trend of converting coal units to use natural gas has developed. Regulations have passed that encourage coal plants before the end of life to convert to natural gas. The coal to gas units have a lower performance requirement and it goes by efficiency. If the gas unit has high efficiency it creates power most of the time. If a less efficient gas unit then it runs part of the time. Investors could find plants that plan on making the conversion.
LNG Canada has proposed a Canadian LNG export terminal. Since 2011, 24 LNG projects received a long-term export license from the government. Located in Kitimat, British Columbia it will become operational in 2021.
LNG Canada partnered with PetroChina Company Limited, Royal Dutch Shell, Petronas and Mitsubishi Corporation. It did so through affiliate Shell Canada Energy, North Montney LNG Limited Partnerships, Diamond LNG Canada Limited and Kogas Canada LNG. Investors may want to take a careful look at coal plants converting to natural gas and where that will go for forward-thinking opportunities.