What next for coal?

With COP24 now underway deep in the heart of coal country in Poland, we can’t help but be reminded of the important role that coal still plays in the energy system today.

There is hardly an economy in the world today that hasn’t relied on coal for its industrial development. A few have done so, notably Japan (although even in that country coal mining rose to some 55 million tonnes per annum during the Second World War), but most economies have developed on the back of coal, or oil and gas where these were in abundance domestically.  It was the use of coal that supported the rise of industry in Germany, Great Britain, the US and Australia and more recently in China, South Africa and now India.

Coal is a relatively easy resource to tap into and make use of. It requires little technology to get going but offers a great deal, such as electricity, railways (in the early days), heating, industry and very importantly, smelting (e.g., steel making). For both Great Britain and the US, coal provided the impetus for the Industrial Revolution. In the case of the latter, very easy-to-access oil soon followed, and mobility flourished, which added enormously to the development of the continent.

Over a century ago, coal was used widely to produce gas for lighting and heating and in two instances, coal has also been used to supply liquid fuels. In Germany during the Second World War, coal was steam reformed and then catalytically converted to diesel fuels for the military. The same process was developed in South Africa during the apartheid years when oil was partly embargoed and remains today with the legacy of the two largest single point sources of carbon dioxide emissions on the planet. Coal is also used in China to make hydrogen for ammonia plants, a critical part of the fertilizer industry.

But the legacy that this leaves, apart from a wealthier society, is a lock-in of the resource on which the society was built. So much infrastructure is constructed on the back of the resource that it becomes almost impossible to replace or do without, particularly if the resource is still providing value.

As developing economies emerge, they too look at resources such as coal. Although natural gas is cleaner and offers many environmental benefits over coal (including lower carbon dioxide emissions), it also requires a higher level of infrastructure and technology to access and use, so it may not be a natural starting point. It often comes later, but in many instances it has been used as well as the coal rather than instead of it. Even in the US, the recent natural gas boom has not completely displaced its energy equivalent in coal extraction; rather, some of the coal has shifted to the export market.

A stark reality of the 21st century is that despite great technical prowess, society still cannot offer a developing country a route towards a full industrial economy that does not involve coal. Little wonder then, as the UN published new data on rising carbon dioxide emissions, that the New York Times prominently featured a story titled “The World Needs to Quit Coal. Why Is It So Hard?”. In fact, the article only discussed the easiest of the current uses for coal to dislodge, as a source for electricity. Solar, wind and nuclear all offer zero emission alternatives and natural gas can offer a much lower emissions pathway. But coal is used abundantly in industry, particularly for iron ore smelting where it is fundamental to the conversion process itself.

Yet as the New York Times clearly point out, coal use must start to decline and do so quickly. In the Sky Scenario, released earlier this year by Shell, even an expansion of natural gas use and very aggressive deployment of renewables only sees coal plateau globally, with the real decline not emerging until the 2030s. This may be the best that can be achieved, given the number of new coal fired power stations being built in Asia, many part of China’s Belt and Road initiative.

Coal in Sky

The future of coal will depend on a variety of developments. Renewable energy deployment will certainly play a role, but it’s effectiveness in displacing coal will depend on how well it can be integrated into the electricity grid. Will we still need base load? South Australia has shown that not to be the case, with a mix of wind, solar, natural gas and interconnectors, glued together with a 100 MW Tesla battery, but has experienced something of a difficult journey to reach that point; the state was an early adopter, so presumably others will fare better.

But coal also needs to be dislodged from industry or married with carbon capture and storage where alternatives don’t present themselves. This means rapid development on several fronts;

  1. Industrial processes need to find alternative sources for heat or even electrify their processes where possible.
  2. A new smelting process needs to emerge for iron ore. Two look promising.
    1. In Abu Dhabi, Emirates Steel use natural gas for smelting and have added carbon capture to the process.
    2. In Sweden, there are plans for a first demonstration plant using hydrogen for iron ore reduction.
  3. Carbon capture and storage needs to be deployed much more rapidly than is the case today, but there is a dependency on government policy emerging to incentivise its application or ultimately require it.

A recently released report by the Energies Transition Commission looks in depth at a number of sectors where abatement has yet to start, but concludes that there are technologies available to begin the journey to net-zero emissions and to deliver such an outcome.

All the above does happen in the Sky scenario and at an accelerated pace. The likely real world outcome is that coal will be with us for some time yet before we bid it farewell. Even late in this century, coal may well remain the feedstock of choice in some countries for petrochemicals. It could well be a very long goodbye.


Note: Scenarios are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities. Please read the full cautionary note in www.shell.com/skyscenario.