Coal Supply/Demand

ST98

Updated July 2017

Supply

  • Production of subbituminous coal, which is the majority of coal produced in Alberta, decreased by 5.1 per cent to 22.2  megatonnes (Mt) in 2016 relative to 2015. It is projected to decline a further 50  per cent between 2016 and 2026 due to environmental regulations transitioning the province away from coal-fired power generation.
  • Production of metallurgical bituminous coal, commonly referred to as coking coal, decreased 10 per cent to 1.8 Mt in 2016 due to the suspension of operations at the Grand Cache mines, leaving Cheviot as the sole metallurgical coal producer in the province for the year. Production is anticipated to improve to and stabilize at 2.0 Mt over the forecast period due to strengthening international market prices and growing international steel production.
  • Production of thermal bituminous coal, also known as steaming coal, increased by 15.8 per cent in 2016, reaching 2.2 Mt. The Coal Valley mine recovered from reduced output in 2015. As Coal Valley is the only mine that currently produces thermal coal in Alberta, output is predicted to average 2.0 Mt per year through to the end of 2026.
  • As shown in Table S8.1 [HTML] and Figure S8.1 [Tableau], total production of marketable coal in 2016 decreased by 4 per cent from 2015, with subbituminous coal responsible for the most significant decline in marketable clean coal production for the year. The current forecast is lower than previous ones because provincial environmental policies recommended by the Climate Change Advisory Panel in November 2015, and adopted by the provincial government in 2016, advanced the retirement of coal-fired power plants in Alberta.
  • In 2016, subbituminous coal production accounted for 84.7 per cent of all marketable coal production, thermal bituminous 8.4 per cent, and metallurgical bituminous 6.9 per cent.
  • Three projects to extract and export the province’s metallurgical coal are currently going through the regulatory approval process. Since they have not yet been approved, they are not included in the forecast.

Burtonsville Island, a small-scale subbituminous coal mine operated by Keephills Aggregate Company Limited (Keephills), which traditionally produces about 0.02 Mt per year, did not report any output in 2016 and has therefore not be included in Table S8.2 [HTML]. Keephills currently does not have an operating licence, but has indicated that it intends to submit an application to restart production.

Citing deteriorating market conditions for metallurgical coal, Grande Cache Coal (GCC) suspended operations at its surface mine at the start of 2015 and halted production from its underground mine in December 2015. GCC’s parent company, China’s Up Energy Development Group Limited, announced in November 2016 plans to restart operations at the surface mine and processing plant in 2017. Reactivating the mine will be contingent upon regulatory and shareholder approval, and sustained metallurgical prices. In January 2016, GCC applied to develop its 12 South A underground mine project. If approved, the mine would reportedly produce an average of 1.4 Mt of raw metallurgical coal per year. Neither activity has received regulatory approval.

In the summer of 2015, Teck Resources Limited (Teck) temporarily shut down its Cardinal River (Cheviot) mine, which produces metallurgical coal. The closure was in response to market conditions. Although annual production levels in 2016 were similar to 2015, the previous year’s suspension had a noticeable impact on Cardinal River’s production in August 2015. Teck is currently going through the application process for its Cheviot Upper Harris expansion, which would produce 3.2 Mt of metallurgical coal over five years. Regulatory approval has not yet been received.

Benga Mining Limited, a subsidiary of Australia’s Riversdale Resources, has submitted an application for its Grassy Mountain mine, which would be located near Crowsnest Pass in southern Alberta and produce 4 Mt per year of metallurgical coal. The company has announced plans to begin construction in 2017, pending regulatory approval, with the operations beginning sometime between 2019 and 2021.

Demand

Subbituminous

  • Under the Government of Alberta’s Climate Leadership Plan all of the province’s 18 coal-fired electricity generation facilities will be retired by 2030. In addition to existing federal regulations, which came into effect in July 2015, the coal demand forecast reflects the implications of the province’s transition away from coal power plants and the associated impacts on supply and demand.
  • Demand for production from the Paintearth & Vesta mine and the Highvale coal mine is expected to significantly decrease by the end of the forecast period because the mines will be directly affected by the retirement of seven of the coal-fired power plants by 2026.

Federal regulations that came into effect in July 2015 require coal-fired power plants to comply with one of the following: retire after reaching 50 years of service, meet emission performance standards matching high-efficiency natural gas generation, or incorporate carbon capture and storage systems. In November 2016, as part of its clean energy strategy, the federal government announced plans to accelerate the phase-out of coal-fired electricity across Canada by 2030. The new federal strategy allows provinces to implement their own retirement schedules—which Alberta has done—as long as they will achieve the federally set target. The Alberta Climate Leadership Plan aims to phase out more than 6000 megawatts of coal-fired power generation capacity by 2030, with renewable energy providing 30 per cent of Alberta’s power generation capacity. Demand for Alberta’s subbituminous coal is expected to slightly decrease from 2017 to 2020, then rapidly decline through to the end of the forecast period due to the anticipated retirement of the following coal-fired electricity generators:

  • ATCO Power’s 149 megawatt (MW) Battle River Unit 3 is on schedule to retire by the end of 2019, and its 155 MW Battle River Unit 4 is expected to retire by the end of 2025.
  • TransAlta Corporation’s 288 MW Sundance 1 and 288 MW Sundance 2 will retire by 2020, with 368 MW Sundance 3 and 406 MW Sundance 4 retiring before the end of 2026.
  • Maxim Power’s 144 MW HR Milner Generating Station will retire by 2020.

Metallurgical Bituminous

  • Annualized total metallurgical removals from Alberta decreased by 20 per cent in 2016 from 2015.
  • Metallurgical coal exports to China, Japan, and South Korea experienced the greatest declines. These declines are attributed to environmental and economic policies that reduced demand for metallurgical bituminous coal. Despite the reduction in exports to these countries, they continued to be the leading importers of the province’s metallurgical coal in 2016.
  • Brazil more than quadrupled its imports of Alberta coal in 2016 as a result of growing demand from the country’s metals industries. Strong steel and iron prices in 2016 contributed to an increased demand for metallurgical coal used in the smelting process.
  • International spot prices rose from around US$90 per tonne for metallurgical coal at the beginning of the year to more than US$200 during the second half of 2016. This sharp rise was a result of global tightening in supply due to such factors as wet weather conditions in Indonesia and China’s decision to limit the country’s number of small-scale mines and reduce the producing days permitted (from 330 to 276). The Chinese government has since relaxed the producing day restrictions in response to the impacts of high coal prices on other sectors of its economy, such as steel production and heating.

Alberta’s metallurgical coal and thermal coal were marketed to a wide variety of international customers in 2016 and captured the recent uptick in prices for both grades of coal. Asia remains Alberta’s primary market for metallurgical coal, although the long distance required to transport coal from mine to market creates a competitive disadvantage for the province’s export-coal producers.

China’s government continued to restrict the importation and sale of lower-grade coal in 2016. These policies are expected to substantially affect the demand for Australian and Indonesian bituminous coal; however, Alberta’s higher-quality coal is not affected by the restrictions, which has allowed Alberta to sustain a market in China for the province’s metallurgical bituminous coal.

Thermal Bituminous

  • Annualized thermal bituminous coal exports from the province did not significantly change from 2015 to 2016, though the destinations did. Reduction in demand from Japan and South Korea was countered by growth in Chile, Taiwan, and the United States. Exports to South Korea completely stopped in 2016 despite the country’s increasing power needs, while deliveries to United States tripled year over year.
  • Although Japan imported less Alberta thermal bituminous coal in 2016, the country remained the largest customer, while Chile ranked second, and Taiwan and the United States both ranked third.
  • Virtually all of Alberta’s thermal bituminous coal was removed from the province in 2016 to be used overseas for power production.

Alberta thermal bituminous coal demand is expected to remain steady throughout the forecast period due to an anticipated growing need for fuel overseas to generate low-cost electricity, especially in Asia. Asian demand is expected to increase over the forecast period because countries such as India, Indonesia, South Korea, Thailand, and Vietnam have shown increased commitments through policies and investments in infrastructure to rely on coal-fired power generation.

Following the Fukushima Daiichi incident in March 2011, all 54 of Japan’s nuclear plants were shut down and the country increased its reliance on fossil fuels, including imported thermal bituminous coal, to sustain power generation. As of November 2016, Japan has 42 reactors capable of restarting, though only two nuclear reactors are operating with another 24 in the application process to restart. However, because of costs to meet enhanced safety requirements for existing nuclear plants, coal-fired generation, which is less expensive, is expected to remain in use in Japan over the next decade. Demand for Alberta’s thermal bituminous coal in Japan is therefore expected to remain strong over the next decade. However, other Asian demand is assumed to be met largely by other international suppliers, thereby limiting export growth potential in these markets.

Under the Obama administration, the United States moved to reduce emissions associated with coal-fired power production under the Clean Power Plan. Although the United States Supreme Court stayed the plan in February 2016, an increasing number of bankruptcies and scheduled power plant retirements have hampered American coal production. The Trump administration, with its “America First” energy plan, intends to rescind the Clean Power Plan and relax other regulations and taxes associated with its coal industry. With American power producers potentially relying on more coal due to a unwinding of the Clean Power Plan, and with the uncertainty of domestic supplies, Alberta may export a small but growing amount of coal into the United States.

More information can be found in the Methodology section.