An LNG crunch is good news for the world’s dirtiest fuel
Photograph: Kemal Jufri/ Panos Pictures
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T HE LAST cargoes of liquefied natural gas from the Gulf, the source of a fifth of global LNG production, set sail a month ago, before America and Israel attacked Iran. As these reach their destinations at the start of April, energy importers reliant on the stuff, particularly for electricity generation, are scrambling to respond. Rich ones are forking out more for whatever LNG they can get their hands on. Some poor ones have shut schools or urged businesses to cut short their work week. Everyone is looking for alternatives. Many are eyeing coal.
In recent days Japan and South Korea have lifted restrictions on older coal-fired power plants, which were being phased out in order to rid the two energy systems of the grubbiest fossil fuel. Bangladesh is importing more coal from Indonesia and South Africa, and more coal-generated electricity from India. Coal prices for delivery from Australia, the main global benchmark for exports, are up by 25% since late February. Black, it seems, is the new black.
The question is why it isn’t blacker still. Oil, with a sixth of global output also stuck behind the Strait of Hormuz, is 50% dearer than before the war. Prices of LNG have nearly doubled in that period. And during the last gas crisis, after Russia’s full-scale invasion of Ukraine in early 2022, the Aussie coal benchmark shot up two and a half times. Today’s comparatively muted reaction so far can be explained by the structure of the coal market and the nature of this energy shock.
Only 17% of coal dug up around the world is traded across borders, compared with 20% of all natural gas and virtually every load of LNG. In 2022 the hardest-hit region was Europe, which drastically curtailed imports of both Russian gas (via pipeline) and coal (by rail). Because many climate-cuddling European countries have all but stopped mining coal, in a pinch they had no choice but to turn to the market. And since Russian coal could not be easily diverted east for lack of adequate railways, the resulting fall in overall supply from the world’s third-biggest exporter pushed global prices sharply up.
This time the energy crisis hit hardest in Asia, where many large energy importers, in particular China and India, still dig up and burn lots of coal. Their mines’ output can be increased to offset the LNG shortfall in a matter of months. And, owing to a gradual transition to less filthy gas and cleaner renewables, they have plenty of idle coal-fired generation that can be quickly brought back online.
As the energy crisis drags on, however, the coal market is likely to get hotter. Japan, South Korea and Taiwan, all big importers of both LNG and coal, find themselves in a similar predicament to Europe four years ago. On March 24th the energy secretary of the Philippines, another large energy importer, said that the country intends to rely more heavily on coal-fired output. Prices for Australian coal, most of which typically ends up in Asia, have risen three times as fast as those in Europe and five times as fast as in America since the start of the war.
If Gulf LNG does not start flowing again soon, prices could climb further everywhere. Globally traded supply is already tight, says Argus Media, a price-reporting agency. Indonesia, the biggest exporter, imposes production quotas to prop up prices (though it said on March 25th it might ease them to profit from the uptick in demand). Cheap, clean renewables will win out in the end as countries seek to conflict-proof their energy mix. Until then, coal is likely to burn brighter. ■
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