Coal is expected to remain the dominant source of power for most of Southeast Asia and Australia in the coming decade, at least, and Fitch Solutions Country Risk and Industry Research says that will support the mining of coal and coal trade in the region.
Coal currently remains the most practical means to stimulate affordable electricity generation growth at the pace and scale needed to support continued economic growth in the region.
Nevertheless, the research agency notes that stricter environmental standards in Asia will continue to hurt coal miners by increasing compliance costs and delaying project development.
Additionally, Fitch Solutions notes that reducing carbon footprints has gained significant impetus since 2020, with the shift to a low-carbon economy to have a significant impact on the regulatory frameworks of most major mining markets in Southeast Asia and Australia as governments commit to their Nationally Determined Contributions under the Paris Agreement.
“Asia Pacific governments will face considerable challenges on this front, where major mining countries, including Indonesia and Australia, will remain largely reliant on fossil fuels (primarily coal) for energy generation,” Fitch Solutions comments.
It adds that Indonesia and Australia will continue to produce the bulk - between 85% and 90% - of total thermal coal output in the region.
It adds that these countries also will continue to account for about 12% of global coal production in the coming decade, as the outlook for thermal coal production in Indonesia and Australia is bolstered by government support, domestic needs and strong demand from coal-fired power plant operators in the region.
Nevertheless, Fitch Solutions says that, while absolute production levels will remain elevated over the coming decade at least, production growth will slow in the long term owing to weak coal prices and rising environmental regulations.
With regard to Australia, the agency says the coal industry will experience limited production growth over the long term, as prices stabilise and environmental regulations heighten, along with increasing competition from lower-cost foreign producers.
Coal production growth in Australia will average 0.05% year-on-year from 2021 through to 2030, with output increasing minimally from 297-million tonnes this year to 298-million tonnes in 2030.
“As investors become wary of climate change issues and global energy consumption patterns shift away from coal, established players will increasingly leave the high-cost Australian coal market, while smaller players enter,” the agency comments.
It adds that Anglo American, Peabody Energy and Vale have all started liquidating their Australian coal portfolios, with Rio Tinto having completely exited the coal market. In place of these established players, smaller, lesser-known players (mostly private equity) have entered the market, some of whom have no prior mining experience.
Nevertheless, in the coming three years, Fitch Solutions suggests that Australia's yearly thermal coal output will rise owing to increasing production at Mach Energy's Mount Pleasant mine (10-million tonnes a year), and Sojitz and U&D Coal's Orion Downs mine (1.5-million tonnes a year).
The ramp-up at Whitehaven Coal's Vickery mine, which started in 2019, will take about six years to reach its yearly rated capacity of eight-million tonnes, and the Carmichael project is also expected to produce between eight-million and ten-million tonnes of thermal coal a year and cost $1.4-billion during its initial phase.
Further, Fitch Solutions says environmental issues and protectionism will also continue to put pressure on Australia's coal sector in the coming years. As a case in point, the agency notes that, though the Queensland government has approved Adani Group's Carmichael coal, rail and port projects, the group has had to fund 100% of the project itself, as announced in November 2018.
In November 2020, the group has rebranded its Australian unit as Bravus Mining and Resources. Banking giants HSBC and Deutsche Bank, as well as European banks such as BNP Paribas, Crédit Agricole and Société Générale, refused to bankroll the expansion owing to intense lobbying by environmental activists.
Therefore, Fitch Solutions says Australia will be at risk of a sudden tightening of environmental regulations, placing in limbo numerous new coal mining projects in the pipeline.
As per Fitch Solutions’ Global Mines Database, 79 of the 176 new coal projects globally are in Australia, although not all of them will be developed.
As for Indonesia, the country will remain the largest coal producer in absolute terms in Southeast Asia in the coming decade, at least, although production growth will slow in the coming years.
Coal production growth in Indonesia will average 0.48% year-on-year from this year to 2030, with output increasing from 468-million tonnes this year to 487-million tonnes in 2030.
Coal will remain a key fuel of choice for Indonesia's power expansion and a key generation source over the coming decade as coal supply remains abundant and cheaper in the market, alongside a government commitment for the source particularly to protect its coal mining industry.
Fitch Solutions says the relatively low cost of the feedstock means that coal will remain the fuel of choice to meet surging power demand in the country, as the government aims to boost domestic coal demand and support coal prices, and they expect lower demand internationally when more markets move towards cleaner generation sources.
Coal power generation accounted for about 60.7% of Indonesia’s power mix in 2020, and this figure should rise to 65% by 2030.
Dynamics in Indonesia will reduce coal supply on the international market and provide some support to prices.
The combination of slower coal production growth and strong domestic demand growth will cap the country’s exportable surplus over the coming years, and the agency says weak export growth will be compounded by the government erecting barriers to coal exports in order to ensure adequate supply for domestic power plants.
The Energy and Mineral Resources Ministry fixed coal’s Domestic Market Obligation for 2020, with 25% of mining production reserved for domestic use.
In the long term, it is suggested that coal output growth will continue to slow, in line with lower coal prices, poor transportation networks and stringent regulations that will increase costs for miners.
PT Bumi Resources is the largest coal miner in Indonesia, while PT Indo Tambangraya Megah specialises in the production of premium-grade coal for the global energy market.
Vietnam’s coal mining sector, meanwhile, will outperform in the coming decade in comparison with other countries in Southeast Asia, excluding Indonesia. Coal production growth in Vietnam will average 1.02% year-on-year from 2021 through to 2030, with output increasing from 39-million tonnes this year to 42-million tonnes in 2030.
The resource industry in Vietnam is largely State-led and heavily regulated by the government, Fitch Solutions comments, noting that State-owned miner Vinacomin is the largest coal producer in the country at present as it accounts for 95% of domestic coal production and has a production capacity of between 40-million and 45-million tonnes a year.
The bulk of its coal reserves are located in the northern area of Quang Ninh province and the Red River Delta basin. The country is rapidly developing new coal-fired power plants, which will bode well for the coal mining sector.
In July 2017, the government tasked the Ministry of Industry and Trade with developing a roadmap for the coal mining sector to ensure sustainable supplies and a more competitive marketplace.
Official forecasts put coal consumption at 100-million tonnes a year by 2030.
Nevertheless, Fitch Solutions says the mining sector will continue to be dampened by decreasing coal prices in the long term, higher natural resources tax, which was implemented since July 2016, as well as higher production costs owing to the depletion of coal layers which are easier to access.
In fact, traditionally an exporter, Vietnam turned into a net importer of coal in 2016.
THAILAND & MYANMAR
Meanwhile, Fitch Solutions notes that Thailand and Myanmar will continue to incorporate the least amount of coal in their power mix compared with other countries in Asia in the coming decade.
Thailand’s coal-fired power as a percentage of total electricity generation from all sources will amount to only between 16% and 17%, while Myanmar’s figure will remain within 6% to 8% from 2021 to 2030.
This is compared with between 30% and 60% of the power mix for the rest of Southeast Asia and Australia, which the agency says will be the main factor causing coal mining sectors in both countries to remain small in the coming years.
The outlook for Thailand's coal mining industry is far from positive, it laments, adding that coal production growth in Thailand will average 1.10 % year-on-year from 2021 to 2030, with output increasing minimally from 24-million tonnes this year to 25-million tonnes in 2030.
Depleting domestic coal reserves will see Thailand increasing imports of coal to fuel its reliance on coal for power generation. Owing to coal being the most cost-effective fuel source, it will still account for a substantial portion of power generation over the coming years.
However, public distrust towards coal-fired power generation over environmental and health issues will continue to rise, limiting investment in coal mining.
Currently, Fitch Solutions says, the majority of the electricity generated in Thailand comes from gas, and that Thailand's latest Power Development Plan (PDP 2018-2037) sets out power capacity expansion targets to reach 77 GW, and a shift in power mix targets amid efforts to diversify away from gas.
While the country will look to reduce its dependence on gas-power generation from an estimated 65.4% in 2018 to 53% by 2037, Fitch Solutions says new sources of power will come from non-fossil sources (35% of the power mix) and, to a lesser extent, from coal (12%).
Myanmar’s electricity also comes mainly from gas, with coal mining to remain limited in the long term. Coal production growth in Myanmar will average 8.9% year-on-year from 2021 to 2030, with output increasing from 2.5-million tonnes this year to 4.7-million tonnes in 2030.
Additionally, with the political upheaval in Myanmar since the February coup by the Tatmadaw (Myanmar military) expected to last for many years, investment in the mining sector will see a sharp decline as international firms seek to leave the market.
For now, Fitch Solutions says mining operations are running smoothly, although firms will increasingly exit the market as international pressures rise.
Currently, most coal mining in Myanmar is done in Shan state, with Eden Group operating the largest coal mine in Tigyit with a capacity of 828 000 t/y.
However, Fitch Solutions says that most coal mines in Shan state are located underground, beneath residential homes and there is significant social backlash as blasts create noise pollution, and waste flows into the Nam Pang river, contaminating the largest tributary of the Than Lwin river.
According to a 2008 law, the central government has the sole authority to mine natural resources, granting coal mining permits to entrepreneurs without the consent of locals.
With strong public opposition, the outlook for the coal mining sector in Myanmar remains bleak.
Coal mining will also come under significant pressure in the Philippines in the coming years as the country’s government has declared a moratorium on coal power projects and will no longer approve the construction of any new coal-fired power plants.
“The government has stressed that coal will remain the dominant power generation source for years to come, with several projects in the pipeline that were already approved prior to the announcement,” Fitch Solutions says.
Coal projects with environmental compliance certificates and permits from local governments will also be excluded from the ban. Coal production growth in the Philippines will stagnate from 2021 to 2030, with output remaining at about 14-million tonnes throughout the period.
In recent years, Fitch Solutions says, coal mining and coal-fired power projects have been facing very strong and increasing public opposition, including the involvement of several religious associations, who signed a manifesto to advance the coal divestment movement and to disallow investments into new 'dirty' assets.
It says that, in May 2020, more than 42 faith-based institutions, including Catholic churches, announced that they were divesting $1.4-billion from fossil fuels, which follows after the launch of Church-CSO Empowerment for Environmental Sustainability, with various church leaders and civil society groups having jointly urged domestic banks to stop funding new coal-fired power projects.
In September 2019, more than 50 civil society groups and people’s organisations participated in a nationwide protest, urging President Rodrigo Duterte to impose a moratorium on new coal-fired power plants.
Several key utilities in the Philippines have also signalled intentions to shift away from coal in recent months.
Nevertheless, Fitch Solutions says that, as coal remains the cheaper and more reliable option to meet the country's power demand surge, particularly as resources in the Malampaya gasfield depletes, with limited scope for exploration success and infrastructural headwinds to liquefied natural gas (LNG) import capacity, the Philippines' power mix will remain dominated by coal over the coming decade.
The share of coal will increase from an estimated 50.8% in 2020 to 59.3% by 2030, with some downside risks. Semirara Mining Corporation (SMC) is the biggest coal producer in the Philippines and operates the only openpit coal mine in the country.
The miner was given exclusive rights by the Department of Energy to mine coal and conduct operations in Semirara. However, Fitch Solutions says various challenges have emerged in the form of a new excise tax introduced by congress in December 2017 as part of the new tax reform programme and local opposition to SMC's coal expansion project in the region owing to concerns over water pollution.
While rising environmental concerns will continue to hinder mine development, the Philippines’ dependence on coal in the long term will keep SMC’s outlook positive.
MALAYSIA AND CAMBODIA
Malaysia and Cambodia will see coal’s share in the power mix rise steadily over the coming decade at least, but both countries will mainly rely on imported coal rather than domestically mined coal.
Fitch Solutions says both Malaysia and Cambodia rely on coal imported from Indonesia at present, and there will be little change in this dynamic.
Malaysia has a very small coal mining sector, located in the state of Sarawak and the country’s coal production will continue to stagnate at 2.6-million tonnes in the foreseeable future, according to the agency.
Despite the prevalence of gas in the power mix, the Malaysian government is hoping to diversify its primary energy sources so that the rising power demand can be met and without having to rely too heavily on the dwindling domestic gas supplies.
Hence, the government is keen to expand coal-fired power generation and from renewable energy sources.
However, Fitch Solutions says that environmental opposition to coal is rising, with Malaysia’s CIMB announcing detailed plans to end coal financing by 2040, making it one of the banks in the region with the strongest climate policy at present.
This follows after major banks in the region have signalled intentions to start moving away from financing coal. Malaysia's Maybank and RHB Bank still appear to remain committed to financing coal projects around the region, despite their new environmental, social and governance policies.
Cambodia, meanwhile, does not produce any coal and Fitch Solutions says this will remain the case in the longer term.
In Cambodia, the lack of sound infrastructure continues to be a major hurdle for miners particularly for the development of bulk commodities such as coal. Similar to other countries in the region, there is also significant social and environmental opposition to coal mining in Cambodia.
Additionally, foreign investors are also not allowed to own land under Cambodia's Constitution and are only able to lease the land for a period of up to 70 years with the option to renew thereafter.
However, Fitch Solutions says the country's investment law allows foreign companies to own 100% of their mining investment, while foreign-owned assets will not be nationalised.