It's celebrated by the government as a positive outlook for Australia’s export industry, but may send shivers down the spine of those concerned about climate change.
In the face of falling demand across many parts of the world, India could drive a new wave of Australian thermal coal exports, according to a Coal to India 2019 report from the Australian Government’s Office of the Chief Economist.
The report concludes that India’s rapidly growing demand for energy presents a major opportunity to increase Australia's thermal coal exports to the country. However, this is not set in stone, as the report at the same time finds that it cannot reach firm conclusions in its outlook for India’s thermal coal imports.
India is the world’s second largest producer and consumer of thermal coal, and its demand for energy is increasing due to the twin pressures of rapid economic and population growth.
Minister for Resources and Northern Australia Matt Canavan said in a government statement that since 2000 more than 500 million people have been ‘switched on’ to electricity, with coal providing around 44% of India’s energy mix.
But by 2017 there were still 168 million people in India with no access to power, Mr Canavan notes
"That is almost seven times the population of Australia”.
Australia is at present not a significant supplier. With 5 million tonnes shipped in 2018, it accounts for only around 4.5% of India’s thermal coal imports, and there are also significant barriers to integrating Australian coal with Indian power plants.
Nevertheless, Minister Canavan believes there is scope for Australia to lift its thermal coal exports to India to the same market share it currently has with China - to just under 25% of their imports. This would mean an additional 37 million tonnes of thermal coal, equivalent to the output of three or four new Adani Carmichael-sized coal mines.
But while India is one of the great hopes for thermal coal exporters (alongside Southeast Asia), it also presents significant risk. “If India’s thermal coal imports decline, there could be substantial implications for seaborne markets,” the report finds.
In the short-term a decline in imports appears unlikely, as current capacity of India’s coal fire plants exceeds electricity demand. But there are no plans to build new coal-fired power stations, and the country is heavily investing in renewables, whil also ramping up its domestic coal production.
According to the report's authors, it is also possible to see a scenario where imports fall, due to lower than expected energy demand, the rapid reduction of barriers to higher domestic coal output, and a faster than expected uptake of renewables”
“We reach no firm conclusions,” the reports authors say, especially as over the longer-term the scale and even direction of India’s thermal coal imports are unclear.
But Australia is also the world's largest producer of metallurgical coal, which is primarily used for steel making, and here the prospects for exports to India are less uncertain. India is set to increase steel production over the next decades, again driven by economic and population growth pressures, and consequently it will need to import more metallurgical coal. For Australia, which is already India’s largest supplier of metallurigical coal, this presents a major opportunity into the future.