Europe's Coal Comeback: Gas Prices Drive Utilities Back to Polluting Fuel

European power producers are reverting to coal due to high gas prices. Soaring costs have driven utilities back to coal, with power generation from this most polluting fuel expected to surge by a quarter in the next six months.

The Iran-US conflict has caused liquefied natural gas shipments through the Strait of Hormuz to dwindle, sending European benchmark gas prices above $90.98 per megawatt hour this month, their highest level since 2022.

This shift in economics is particularly pronounced in Germany, Europe's largest power market and gas consumer. Coal-fired generation is expected to be near its practical limit by the fourth quarter, with little room for producers to respond to another spike in gas prices by switching fuels.