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The World on Fire: Good News for Bulk Carriers?

Millions of virtue-signalling, eco-woke words have been written about the Australian bush fires and how they are a signal for the climate change the world is not only facing but currently undergoing. But as we’ve reported here before and as is plain to everyone, it’s not yet enough to stop humanity burning fossil fuels, only to slow down the growth in their use. And, as this global map of fires from NASA shows, Australia’s bush fires are nothing like as big as those in South East Asia or Africa or even the Latin American rainforests.

To keep global warming to the 2.0 C limit agreed in Paris, we have to wean ourselves off hydrocarbons, as is now clear, and especially off coal. The world cancelled 1,756 Gigawatts of coal-fired power generation between 2010 and 2018 according to Global Energy Monitor, but China alone increased five-fold its coal burning power generation capacity between 2000 and 2018 to 973 Gigawatts. China now consumes half of all the 8 Bn Tpa world coal production. China’s newer coal-fired plants are much better at scrubbing emissions, though Beijing’s PM2.5 particulate concentrations are still well over 20 times WHO standards. But that’s a sticking plaster on a deep wound.

To generate cheap electricity, an effective subsidy for its exporting manufacturers, China has strategically built up its coal-fired generation and still has plans for another 300 coal-fired plants that will produce the equivalent of all the coal-fired electricity remaining in the EU. It isn’t just China; data from the World Bank shows that 66 counties now use coal-fired plants to generate electricity, up from 40 at the turn of the century, and that coal continues to generate around 40% of the world’s electricity.

As part of free-trade negotiations, China’s electricity became subject to market pricing in 2017. Subsidies remained for solar until last year, which boosted solar installations, but these subsidies were dropped as well because of free trade negotiations. Consequently solar take-up has stalled, giving coal and natural gas a boost. Natural gas cargoes unloading in China totalled 135 Mn T in 2019, up around 14% on 2018’s total. From 1 January 2020, China has instituted a new “base price” for thermal coal, designed to assist coal producers to be more profitable, as coal prices have been rising but sales prices have been fixed by the National Development and Reform Commission. Coal sellers can negotiate higher prices than the base price when demand increases. These market reforms may be to Big Coal’s favour when renewable subsidies are being cut.

This year China has to open its oil and gas exploration licenses to overseas companies, as it tries to reverse the 10% fall in domestic production from its mature oil fields. However, with a four-year global high of 12.2 Bn Barrels of oil Equivalent discovered in 2019 (basis Rystad Energy data), most major international oil companies feel inventory-rich, especially with oil prices stubbornly rangebound even with the US and Iran lobbing missiles at each other in the Middle East. Moreover, PetroChina achieves about a 9% IRR on its investments compared to up to 40% IRR on Permian basin shale plays in the US. So, for China and investors in China, oil and gas are much lower priorities than coal.

The International Energy Agency (IEA) believes that Chinese coal consumption will peak in 2022, but at nearly 4 Bn T a year it will still be about 3.5 times bigger than that of India, the second largest consumer. India is likely to take over from China as the fastest-growth coal consumer. The IEA believes Indian coal consumption will rise by 4.6% a year to 2024, while Indonesia and Vietnam will lead South East Asian coal consumption growth of 5% a year. Most of the increased coal consumption in India will be imported by sea. Meanwhile, mining giant BHP Billiton projects Indian steelmaking is on course to grow by 7% per year over the next decade. India’s yearly output of over 100 million tonnes of steel has now surpassed Japan to become the world’s second-largest steelmaking country. Coking coal imports will grow for sure and India will be the focus for dry cargo demand growth in the 2020s.


Over 500 bulk carriers are scheduled to deliver from ship yards this year and ship owners will be cautious about what this 4% growth in the bulk carrier fleet (before scrapping) will do to freight markets. The macro economic picture for coal suggests that government policies in the biggest coal-burning countries in Asia will continue to support coal demand in spite of climate change already making itself felt across the region. A good deal of that coal will be imported. So, the world may be burning but the bulk carrier market can keep fiddling like Nero, at least for a few years yet. But if Asia gets really serious about decarbonisation, the 2030s could be the beginning of the end for the bulk carrier freight market as we know it.

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