AS the COVID-19 pandemic slams the economy, analysts fear it may slow down decarbonisation efforts, as coal, relatively unaffected by the oil price crash, could be seen as the fuel source of choice for companies and governments stripped of all financial capacity to invest in renewables.

 In analysis released on Friday, Rystad said coal was already cheap before the economic shockwaves ripped through the energy sector, and the demand for it in China, during its own lockdown, was accompanied by a domestic production cost, balancing the market.

Now, it believes coal mining capacity is moving quickly back towards full capacity and power generation returning to normal levels, meaning thermal coal import demand into China is likely to total close to the 2019 annual numbers, though reports indicate some ports have already reached their 2020 annual quota limits.

It also noted the cheap price of oil, which is used as a fuel in coal mining could reduce coal output costs by a few dollars per tonne.

"With ARA prices already so low, any cost decrease will potentially give struggling producers selling to Europe a little breathing room, rather than allowing prices to move down any further," Rystad's head of global coal research Steve Hulton said.

The analysis noted a possible outcome of the pandemic could be a shift in public opinion and policy regarding the speed of transition towards a low carbon power generating future, noting coal to be a cheap, but problematic, source of energy to rebuild the economy.

"These factors could potentially lead to a slowing of the rate of the energy transition," Hulton said.

Separate analysis from Wood Mackenzie noted the cheap price of gasoline could also de-incentivise people from purchasing electric vehicles.

But it did say the volatility of oil market could lead to energy companies losing their appetite for oil and gas projects and instead invest in renewables, particularly given the ambitious decarbonisation targets some have set for themselves.

WoodMac analyst Valentina Kretzschmar said solar and wind projects have offered much lower rates of return than oil and gas projects, but now with the oil price through the floor this will no longer be true.

"Renewables projects suddenly look as attractive as upstream projects at US$35 a barrel," she said. The oil price has since slipped to $26/bbl. 

International Energy Agency executive director Fatih Birol has urged governments to use their economic rescue packages to support low-carbon energy investment. 

Source: Energy News Bulletin

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