The global energy landscape is shifting as a shortage of liquefied natural gas (LNG) drives up demand for coal. LNG flows from the Persian Gulf remain over 75% lower than pre-war levels, while heating demand ahead of winter pushes prices higher. In Europe, the November natural gas benchmark contract is trading at over 81 euros per MWh, and in Asia, spot market LNG prices have surpassed European levels, pulling cargoes eastward. Coal, despite being 80% cheaper than LNG, has faced regulatory pressure due to its high carbon emissions and pollutant gases.
Despite climate regulations and the push for net-zero emissions, coal remains a critical part of the global energy system due to its affordability and reliability. The International Energy Agency (IEA) predicts coal demand will reach an all-time high this year, driven by peak demand in the fourth quarter. Coal exports, which were on track for an annual decline, are now expected to rise sharply. Australian thermal coal is trading at a discount of 80% to LNG for delivery in Asia, where spot prices for November cargoes have climbed to $26 per million British thermal units (mmBtu).
The decline in LNG exports from the Strait of Hormuz, exacerbated by tanker attacks, has further strained supply. In September, only 21 LNG cargoes exited the Strait, down from over 60 before the war. Meanwhile, coal prices remain significantly lower than LNG, with Australian benchmark coal trading at $5.40 per mmBtu. This price disparity is prompting governments to reconsider their energy transition plans, especially in major coal importers like Japan, South Korea, and China, which collectively imported 122 million tons of coal in the third quarter of this year.
Even in Europe, where coal faces the most regulatory opposition, imports have surged due to high gas prices and the ban on Russian energy imports. The European Union saw a 43% year-on-year increase in coal imports in June. Indonesia, the world’s largest coal exporter, has cut exports by 23% due to production quotas and policy changes, potentially driving coal prices higher during peak demand season. However, coal prices are unlikely to ever match LNG prices, ensuring its continued role in the global energy mix.