Coaltrans Conferences (CC): Hi Yahdian, thanks for speaking with us. Please can you give us a little information on your background and your role at EnBW?

Yahdian Falah (YF): I have many years of experience in the global energy markets and my professional experience includes positions at E.ON and Markedskraft with placements in Germany, Sweden, Indonesia and Singapore. In the past, I have held analysis and trading strategist roles in several commodity markets including the global oil and the European carbon markets. Currently I am leading a team responsible for the market and trading analysis of the global coal market at EnBW AG in Germany.

CC: Lots has been discussed around the coal phase out in Europe, but Germany is having a harder time than expected moving away from coal. How long do you think coal will remain a major part of Germany’s energy mix?

YF: In 2017, Germany took out approximately 4,5 GW capacity of hard coal-fired power plants, which either closed down permanently or are going into the grid reserve. According to the German Federal Network Agency, there will be 3,1 GW of announced capacity closures and 2,3 GW of planned new build over the next 3 years. This makes a net capacity change of 0,8 GW until 2021. So, based on the Agency’s information, Germany will not be seeing another wave of closures like the country saw in 2017. 

It is also expected that installed capacity of renewables (wind and solar) will continue to increase with an annual growth of 7% - 8% and if realised, will lead to an increase in electricity generation from these sources. For the total power consumption in Germany, the consensus is that it will remain stable over the next years. As a result, the share of the renewables in Germany’s generation mix will increase at the expense of coal. The International Energy Agency sees coal’s share to fall to 35% in 2022 compared to 40,3 % in 2016. This would suggest that the role of coal in Germany will decline but will still remain a major part of Germany’s generation mix. The nuclear phase out by 2022 should provide some support to coal.

This outlined picture is just one of various possible future paths. The market dynamic in the German power sector is heavily dependent on the price dynamics of other commodities, such as natural gas, coal and also carbon prices. Finally, changes in climate policy and market dynamics of neighbouring countries are also adding to the degree of uncertainty going forward.

CC: What are the key trends you’re seeing in coal that will dominate the industry over the medium term?

YF: In my view, new demand growth centres in both the Atlantic and Pacific Basin will gain significant importance, which will be decisive for future development in global coal market dynamics. 

In the Atlantic Basin, the thermal coal demand in the Mediterranean region is likely to see continued strong growth. This is not only due to planned new coal power plants to be operational but also the expected increase in industrial demand. In the Pacific Basin, the South East Asian demand will also see significant growth. Over the next years South East Asia will be the region with the biggest growth rate in new build coal-fired power plant capacity. If those planned capacities will be realised then this would lead to significant increases in coal demand and thus imports. For Indonesia, this would mean a reduction in exports over the medium term. 

On the supply side, despite the upward trend in prices, overall investment projects on new mining capacity have been disappointing. There seems to be factors other than prices that cause the current lack of appetite for investment. 

However, the most important trend that I expect in the coal market over the medium term is the growing uncertainty on global seaborne import development. Uncertainty on the realisation of planned power plant projects, energy prices and also changes in energy policies can turn market dynamics and market expectations into the opposite direction or may intensify the existing trend. As a result, I also expect high price volatility to remain in place until these uncertainties somewhat dissolve.

CC: Do you think coal will maintain its large market share in Asia?

YF: As Asia’s economy continues to grow, power demand will increase as well. In order to meet and maintain this growing power demand, Asia is likely to keep coal as the preferred choice of generation. The relatively low cost and its abundance provide the ideal support for coal. This is evident when looking at the projected generation capacity of the Asian countries. 

As I have outlined before, there is a significant number of coal power plant projects that is expected to be commissioned over the next three years despite the fact that some countries have encountered headwinds to these new projects or even fall short of the expected realisation of the projects. So this would support the view that coal will maintain its large market share in Asia for the foreseeable future.

CC: Prices are in a strong place at the moment and many miners are bullish. Do you share their optimism?

YF: Since 2016, the global coal market has been in an expansion mode where seaborne coal demand/import has been rising and exports were not able to follow at the same pace. China’s policies on coal production have also significantly driven market dynamics. As a result, the global coal market tightens and prices have significantly moved to the upside. 

So obviously, for prices to remain high, the underlying bullish market structure must be maintained, both in demand and supply. On the demand side, this could be supported if the large share of globally projected coal power plants will be realised as planned as they will provide a strong base for a continuation in a rising global demand/import balance. Again, for key exporting countries such as Indonesia, a trend of growing domestic demand will result in a trend of falling exports. However, the real challenge is whether power generation from coal will increase alongside rising coal generation capacity as high uncertainties also evolve from other key demand drivers such as energy policies, efficiency gains, capacity additions from other sources (gas, renewables, nukes, etc.) and developments of other energy prices. 

On the supply side, despite strong price movements the progress in coal project development has been slow. The rising uncertainties about future demand and high price volatility have rather been factors that hinder investment rather than they were conducive. This situation has exacerbated the bullish trend in coal prices over the past years. Bearing in mind the coal mining industry has just recovered, so their appetite and commitment for investment may still be low. In my view, coal miners are currently in a “wait and see” mode and once the industry gains more conviction, either of sustained price strength and/or sustained demand growth, then investment appetite will return.

CC: Finally, you’re joining us in Bali this for the 24th Coaltrans Asia. What are you most looking forward to hearing about at the conference?

Coaltrans Asia is one of the main events of the year in the global coal market. It has been an excellent event with very good opportunities to network with the coal industry. So, as the coal market is moving on a high pace, I am looking forward to hearing about the near and medium term developments in the global coal markets. Another topic that I am highly interested in is the future developments in the Indonesian coal sector. A significant change in Indonesia’s coal sector may have a knock-on effect on the European market.