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G7 coal phase out could support seaborne coal volumes

Leadership Insights newsletter story

The G7 group of nations, comprising Canada, France, Germany, Italy, Japan, the UK and the United States, have agreed to end the use of unabated coal power by 2035.

25 June 2024
G7 phasing out of coal will likely see redirected trade routes over longer distances. Credit: Shutterstock

The G7 group of nations, comprising Canada, France, Germany, Italy, Japan, the UK and the United States, have agreed to end the use of unabated coal power by 2035. Under the deal, nations will still be able to generate electricity from coal power plants so long as carbon capture systems are installed to mitigate greenhouse gas emissions. 

Head of dry bulk freight and commodities research at MSI, Dr Plamen Natzkoff, told ICS Leadership Insights that the declaration is unlikely to affect the steep downward trajectory of coal in Europe, but falling Japanese demand will be felt in shipping. 

“It is clear that shipping demand from coal consumers in Europe, and now Japan, will be minimal from mid-2030s onwards. Given Japan’s complete reliance on coal imports, the removal of the 3rd largest coal importer will be a significant change for the shipping market, and especially the Capesize market,” said Natzkoff.

Europe, comprising the EU and Turkey, imported 72.6m tonnes of coal in 2023, according to data provided to ICS by Clarksons on the seaborne thermal coal trade. Japan imported 113.2m tonnes, the third largest importer behind India at 186.0m tonnes and China at 313.4m tonnes.

As noted in the G7’s Comminiqué, coal demand from its member nations reached lows not seen since 1900 as the countries tackle energy-related CO2 emissions. Clarksons data showed a downward import growth trend forecast for Europe of -7% and -6% for 2024 and 2025, respectively. Turkey was alone in showing positive growth in Europe of 2% and 3% in the forecasts for 2024 and 2025, with combined EU and UK volumes expected to be -10% in 2024 and -11% in 2025.

While the G7 looks to cut coal use, global coal-fired power generation capacity rose by 1.6% to over 2.2TW in 2023, with a further 500GW of capacity under development outside of the G7.

The shuttering of G7 coal plants could have unintended consequences, said Natzkoff. Firstly, the closure of North American coal-fired power plants is likely to support shipping demand as exports rise, particularly in the US. Secondly, coal volumes currently imported by the G7 will be redirected to coal users including China, India, South Korea, Turkey, and fast-growing nations in Southeast Asia.

“The net impact of redirected coal flows will depend on specific trade routes, and it is likely that we will see longer sailing distances. For example, we are likely to have less US and Colombian coal trade into Europe, but more US and Colombian trade into India, South Korea and South East Asia,” said Natzkoff. The Capesize and Panamax segments are expected to benefit most.

Demand for bulk coal transport could be further spurred by the removal of price insensitive buyers in Europe and Japan, putting downward pressure on global coal prices. “This could incentivise higher coal-fired load factors to the detriment of gas-fired units in countries not covered by restrictions on coal use and in fact stimulate higher volumes of coal trade,” said Natzkoff.