Bangladesh’s growing energy demand is a panacea for Australian coal

While the longer term outlook for thermal coal looks bleak as more countries move towards cleaner sources of energy, Australian producers might find a temporary lifeline from Bangladesh.

The south Asian country is expected to double its fossil fuel imports to 32 million tonnes of oil equivalent (Mtoe) between 2020 and 2030 with coal demand rising fourfold to 12Mtoe.

Wood Mackenzie says the Bangladesh government is adding import-based coal capacity to lower power generation cost and increase reliability as its total energy demand rises 27 per cent in the same period to 55Mtoe.

Indonesia and Australia are likely to be key beneficiaries of this increased demand from the country.

Australian LNG could also benefit from Bangladesh’s expected move to import more gas as domestic supplies to fuel its power generation requirements wane.

Asia Pacific head of markets and transitions Prakash Sharma says Bangladesh needs a reliable base load capacity for its electrification needs.

“Coal and LNG imports are thus important to support this as domestic coal struggles with the economics of quality production, while domestic gas is on a steep decline. LNG and coal account for most of the incremental fossil fuel imports between 2020 and 2030,” he added.

While Bangladesh is a far cry from meeting its goal of using renewable energy to generate 10 per cent of its total electricity generation by 2020, Sharma says it has made efforts to reduce air pollution and carbon emissions.

“We expect renewables to make up about 2 per cent of total electricity generation this year, 6 per cent by 2030 and 16 per cent by 2040,” he noted.

“It has recently launched the Green Transmission Fund which aims to finance green businesses including renewable energy. This should provide upside to investments in the renewables sector.”

The increased demand for Bangladesh would no doubt be welcome for the sector given that the real value of Australia’s thermal coal exports is projected to decline sharply from $26bn in 2018-19 to $21bn in 2019-20.

Export earnings are then expected to edge down and level out in the $17-20bn range through to 2024-25, in real terms, according to the Office of the Chief Economist’s latest Resources and Energy quarterly.

Financing options for thermal coal have been drying up with Westpac being one of the latest in a long line of banks ending their support for investment in the sector.

This led to Australian Resources Minister Keith Pitt urging banks to act in the best interests of their bottom lines and shareholders because Australia needs new mining and energy projects to offset the impact of the COVID-19 pandemic.

Additionally, coal demand in other parts of Asia could decline further with India aiming to increase its renewable energy generation to 450 gigawatts by 2030, while the Institute for Energy Economics and Financial Analysis (IEEFA) expects that renewable energy in China will reach parity with coal-fired power this year as capacity expansions drive economies of scale.

Japan has been moving away from coal with the government renewing its commitment to the Paris Agreement, while South Korea’s new government is pressing ahead with its Green New Deal that includes a target of zero net emissions by 2050.

The US is also on track to produce more energy from renewables than coal for the first time on record, according to the Energy Information Administration (EIA).

It comes as electric utilities retire hundreds of ageing coal plants while the cost of building wind and solar farms has dropped dramatically.

Low gas prices have also helped in coal’s demise despite President Donald Trump’s push to revive the coal sector by relaxing pollution rules on coal-fired plants.

Calls have also been made to harness Australia’s abundance of wind and solar resources to create an export-focused manufacturing sector that will create new jobs to offset expected losses from the coal sector.