Global Coal Demand Rises as LNG Shortage Deepens

Global coal demand is rising ahead of the winter heating season as liquefied natural gas flows from the Persian Gulf remain over 75% lower than pre-conflict levels, according to OilPrice.

Persian Gulf LNG flows are still heavily impacted by geopolitical conflict and tanker attacks in the Strait of Hormuz. In September, 21 LNG cargoes exited the strait, down from over 60 before the war. Consequently, Asian spot market LNG prices have topped $26 per million British units, while European November natural gas benchmark contracts trade above 81 euros per MWh.

Coal Price Advantage

With LNG trading at significantly higher levels, buyers in Asia and Europe are turning to coal, which is roughly 80% cheaper. Australian benchmark coal is trading at the equivalent of $5.40 per mmBtu, providing a substantial cost advantage for major energy importers including Japan, South Korea, and China.

Data compiled by Kpler shows Japan, South Korea, and China imported a collective 122 million tons of coal during the third quarter. Meanwhile, European coal imports have also risen strongly this year, driven by higher gas prices and bans on Russian energy commodities.

Supply Tightening Risks

Despite the surge in demand, global coal supplies face potential tightness. Indonesia, the world's largest coal exporter, has implemented production quotas and policy shifts that saw its exports drop by 23% in August. The International Energy Agency expects Indonesia's coal production to decline by over 12 million tons this year, potentially pushing prices higher during the peak demand season.

Key facts

• Persian Gulf LNG flows remain over 75% lower than before February 28th due to ongoing regional conflict and tanker attacks.
• Asian spot LNG prices have topped $26 per mmBtu, while European benchmark gas trades above 81 euros per MWh.
• Coal trades at an 80% discount to LNG, with Australian thermal coal equivalent to $5.40 per mmBtu.
• Japan, South Korea, and China imported 122 million tons of coal in the third quarter.
• Indonesia's coal exports dropped 23% in August amid production quotas and regulatory changes.