The Last Barrel

A funny thing happened, as His Highness, Barack H. Obama, worked on new methods to achieve his Utopian dream of a coal-free America. While Obama was busy pillaging (figuratively) the coal economies of Wyoming, West Virginia, Pennsylvania, Ohio, Kentucky and Virginia, no less than the International Energy Agency (IEA) came out with a study that says globally, coal will be a long-term, dominant fuel. Yes, that’s right. The report, entitled, Medium-Term Coal Market Report 2012—Market Trends and Projections to 2017, says that coal may be the world’s dominant fuel by 2030. In fact, the report’s press release said that “coal’s share of the global energy mix continues to rise, and by 2017, coal will come close to surpassing oil as the world’s top energy source.”

Although coal’s growth rate is slowing from the frantic pace of the 2001-2011 period (global coal usage jumped 4.3% in just one year, from 2010 to 2011), global coal consumption by 2017 will stand at 4.32 billion tonnes of oil equivalent (btoe), versus around 4.40 btoe for oil, based on IEA medium-term projections. The IEA said that it expected coal demand to increase in every world region except the U.S., where coal is being pushed out by natural gas (the IEA forgot to mention that coal would not be pushed out by gas without an extra, helpful shove from Obama).

“Thanks to abundant supplies and insatiable demand for power from emerging markets, coal met nearly half of the rise in global energy demand during the first decade of the 21st Century,” said IEA Executive Director Maria van der Hoeven. “This report sees that trend continuing. In fact, the world will burn around 1.2 billion more tonnes of coal per year by 2017, compared to today, equivalent to the current coal consumption of Russia and the United States combined. Coal’s share of the global energy mix continues to grow each year, and if no changes are made to current policies, coal will catch oil within a decade.”

China and India will lead coal consumption growth over the next five years. China will surpass the rest of the world in coal demand during the outlook period, while India will become the largest seaborne coal importer and second-largest consumer, surpassing the U.S. Even if Chinese GDP growth were to slow to a 4.6% average, coal demand would still increase both globally and in China—indicating that coal demand is not likely to stop growing.

So, what are the ramifications for the U.S. energy mix? Simply stated, if Mr. Obama wants to wipe out all U.S. coal-fired electricity within a generation’s time, he’s not only going to have to fight all his usual opponents, he’s also going to have to fight his own Energy Information Administration (EIA). In early-release projections from its Annual Energy Outlook 2013 publication, EIA says that, at most, coal’s share of U.S. electricity generation will fall from 42% in 2011 to 35% in 2040. So, coal is here to stay; other fuels will only shave off a few percentage points of market share.

Indeed, we don’t really know how much share that shale gas will be able to take away from coal, because Mr. Obama continues to hassle the industry, via the EPA, on a host of issues, from venting to flaring to fracing to water disposal. In addition, it doesn’t look like nuclear power is going to be much help in divesting from coal-fired generation, either. Problems stemming from Japan’s great Tōhoku earthquake and tsunami of March 2011 have diminished enthusiasm for increases in U.S. nuclear power capacity as a means of reducing coal dependence.

Fernández up to her old tricks. In her never-ending quest to be the female Hugo Chavez, Argentinian President Cristina Fernández last month employed one of her favorite tricks from 2012 to further distract her fellow Argentinians from the country’s real problems. As Klaus Dodds, professor of geopolitics at Royal Holloway, University of London, so brilliantly analyzed in an editorial in The Telegraph on Jan. 3, Ms. Fernández once again distracted the Argentinian public from the issues of inflation, poverty and corruption by writing an “open letter” to British Prime Minister David Cameron. Fernández, “in the name of the Argentine people,” urged Cameron to “abide by the resolutions of the United Nations” and negotiate a settlement over the islands’ sovereignty.

Cameron dismissed Fernández’s demands, noting that Falklands residents will have their chance, in a March 10-11, 2013 referendum, to decide whether to remain part of the UK or to side with Argentina. That referendum should go heavily toward the UK. Lacking the military clout to forcibly take the Falklands from Britain, Fernández has hassled the island territory’s economy, principally by trying to disrupt its tourism. As oil and gas activity continues around the islands, Fernández seems increasingly desperate to grab control of them, particularly now that the Falklands Department of Mineral Resources is claiming 350 MMbbl of oil reserves.

Adios, Salazar and Chu. Two Obama administration figures that the industry despises, Interior Secretary Ken Salazar and Energy Secretary Steven Chu, have announced that they will leave their posts in March and at the end of this month, respectively. While their departures are a good thing, the industry should remain vigilant, because so far, Obama’s nominees to replace the original cabinet members have all been worse than their predecessors (i.e., John Kerry replacing Hillary Clinton at State, and Chuck Hagar replacing Leon Panetta at Defense). Obama has nominated Sally Jewell, president and CEO of outdoor and recreational retailer REI, to replace Salazar, but analysis of her was not complete as this issue went to press. Potential replacements for Chu are former Democratic governors Bill Ritter (Colorado), Jennifer Granholm (Michigan) and Chris Gregoire (Washington state) Then again, maybe Obama will pull former New Mexico Gov. Bill Richardson out of mothballs and have him reprise his role as Energy Secretary under Bill Clinton.