Global Coal Demand Rises as LNG Shortage Deepens

Liquefied natural gas (LNG) imports into the Persian Gulf have fallen 75% since February 28th, while winter heating demand is increasing. In Europe, natural gas prices are trading at over 81 euros per MWh, and in Asia, spot market LNG prices have surpassed European prices, causing cargoes to flow eastward. Meanwhile, coal prices are 80% lower than LNG, making it an affordable and reliable energy source.

Despite climate-related regulations targeting coal due to its high carbon emissions, coal remains a vital component of the global energy system. However, global oil exports have declined due to climate-related regulations and the recent war between the U.S. and Israel. The International Energy Agency predicts a record-high demand for coal this year, despite the push for net-zero emissions and an increase in LNG export and import capacity.

In September, the IEA reported that global coal demand is expected to reach an all-time high. Coal purchases are anticipated to surge in the fourth quarter, with Australian thermal coal trading at an 80% discount to LNG for Asian delivery. The current quarter appears likely to exceed expectations, as Australian thermal coal is currently priced at just $5.40 per mmBtu, making it significantly cheaper than LNG at $26 per mmBtu.

This price advantage is particularly appealing to major energy importers like Japan, South Korea, and China, which have collectively imported 122 million tons of coal during the third quarter of the year. Europe, which has been a strong advocate for reducing coal consumption, is also experiencing a rise in coal imports due to soaring gas prices and the EU's ban on Russian energy imports.

Despite Indonesia being the world's largest coal exporter, its production has dropped by 23% in August. The International Energy Agency expects Indonesia's coal production to decline by over 12 million tons this year due to lower production quotas, political discussions about revenue-sharing, and the possibility of export control by a single state-owned entity.