Another Global Pivot to Coal?

War in the Middle East is continuing to upend energy markets. With natural gas supply dramatically reduced with the closure of the Strait of Hormuz and natural gas prices soaring globally, the pivot to coal has begun.

Buyers from Europe to Asia are scrambling for natural gas substitutes. Rising prices for thermal coal – still a song compared to spiking natural gas prices – reflect the ongoing pivot. According to Argus, European prices for thermal coal used for power generation have risen 26 percent since the eve of the war, reaching $133 per tonne, with similar gains in the Australian and Asian markets.

With natural gas prices in Europe already up more than 75 percent, coal generation is winning the marketplace and beginning to serve as a price shock absorber on electricity grids that still have access to it. In Britain, where the nation’s last coal plant was closed last year, soaring natural gas prices are once again a most unwelcome shock without any answers.

Spiking gas prices are even prompting some nations to bring back shuttered coal capacity, something that last happened in 2022 following Russia’s full-scale invasion of Ukraine. Italy has already made clear that should natural gas prices continue their rise and the energy shock continues, it will consider restarting mothballed coal plants to alleviate price pressure on consumers and the economy.

In Asia too, the pivot to coal is well underway. According to the Financial Times, utilities in Japan, South Korea, Taiwan, Thailand and Bangladesh are turning to greater reliance on coal to reduce their exposure to the LNG market.

Bloomberg’s Javier Blas presciently tweeted last week, following the closure of Qatar’s LNG production facilities, “Asian countries got a huge reminder today of the advantages of coal for baseload electricity.” He added that this shock will likely leave a lasting imprint on energy policy. As days of disruption to turn to weeks, it appears his call is looking right on the money.

A Safer Bet

If the crisis continues, and there’s ample reason to believe resolution remains elusive, there are going to be more than a few countries that question greater reliance on LNG and the global gas market. Two energy shocks in four years are more than enough to do lasting damage to confidence in the security and reliability of global gas supply. China’s decision to double down on coal as an energy security and affordability hedge is looking wiser by the day.

The International Energy Agency has again and again had to punt on its predictions of peak coal demand. This energy crisis is likely to further extend coal’s runway. Global coal demand, which hit a new peak last year, is showing no signs of fading. In fact, there’s now ample reason to believe it’s going to rise, and the U.S. is well positioned to meet it.

U.S. producers have historically served as swing suppliers to global coal markets. When prices rise and markets tighten, U.S. suppliers can quickly bring product to the market to provide reliable fuel and manufacturing inputs to allies and trade partners. With U.S. coal exports already reaching 70 different nations, U.S. coal will undoubtedly have a critical role to play in meeting the needs of a rapidly reshuffling global energy marketplace.