2025 was supposed to be the year of peak global coal, or at least close to it. As recently as December, the International Energy Agency forecasted that 2025 coal demand would be similar to 2024, at around 8.8 billion tons, and would begin to decline by 2030.
There were promising signs that this story would pan out — coal demand in China, the world’s largest consumer, may have peaked in 2024 or 2025. Coal-fired power generation was also falling in India, the world’s second largest coal consumer, for the first time since the 1970s.
Then came “the greatest global energy security threat in history,” as IEA chief Fatih Birol put it.
Until February 28, about a fifth of global oil production and a fifth of liquified natural gas flowed through the Strait of Hormuz. Since the United States and Israel struck Iran, however, the strait has been effectively closed. The IEA has projected that, on net, global oil production would fall by 8 million barrels per day in 2026 due to shut-in production as a result of the war. Iranian airstrikes have also knocked out almost a fifth of Qatar’s LNG production, damage that will likely take several years to recover from.
Middle Eastern fossil fuels largely go to Asia, where oil and gas feed the region’s power plants, cars, and petrochemical factories. In their absence, Asian countries are scrambling to keep power generation steady. That often means (re)turning to coal.
“Last year I put my flag in and called peak coal in seaborne markets,” Anthony Knutson, global head of thermal coal markets research at Wood Mackenzie told me. Now that the strait is closed, however, “It’s still plateauing — it’s a longer plateau, and then a drop-off.”
That’s because, he said, “everybody runs back to energy security.”
Rich Asian countries such as Japan, South Korea, and Taiwan that are unable to get the gas they’ve already contracted for are having to decide between ramping up coal output or paying for gas in the extremely expensive spot market. How much coal generation actually rises “is a function of how much spot gas can be purchased” and “how much pain they’re willing to take on gas prices,” Knutson said.
The more expensive gas becomes, the more these countries will opt for coal.
“If LNG prices stay relatively high due to the impact of the war, we would expect thermal coal to take market share from gas in the seaborne markets,” Jefferies analyst Lloyd Byrne wrote in a note to clients earlier this week. “The most price-sensitive customers in Asia will switch to coal,” a team of Jefferies analysts wrote in a separate note.
In South Korea, the government lifted limits on capacity utilization in the nation’s coal fleet. Thailand restarted coal units after spot LNG prices nearly doubled. Japan’s policy before the crisis was to cap coal utilization at 50% and to eventually phase it out entirely; now it’s planning to lift limits on coal output, Nikkei reported.
China and India, Knutson said, will likely turn to domestic coal production, while the rest of Asia will be looking to increase imports from Australia, South Africa, Russia, and Indonesia.
Evidence of gas-to-coal switching is showing up on the supply side as well as the demand side. Indonesia, the world’s largest coal exporter, was planning to cut production from 790 million tons to 600 million tons because, Knutson said, it was worried the market was oversupplied and prices were depressed. Now the government is allowing coal miners to increase production.
But whether this is a temporary surge in coal use (and emissions) or a permanent reordering of the energy system depends on the duration and intensity of the shock, and markets and analysts still seem to think markets will return to something like normal.
Like other energy commodities, coal prices have been volatile this month as President Trump continues to hint that he would prefer the war to end soon while the strait remains closed. Coal prices have shot up to around $140 per ton Thursday, compared to around $101 at the beginning of the year. While still a sizable increase, it’s nowhere near the dislocations seen in 2022 following the Russian invasion of Ukraine, when coal prices jumped to above $420 per ton. That volatility means that few analysts expect any long term increase in investment or production, which in turn makes the increase in demand almost pure profit for producers.
“You’re not going to open a new pit. You’re not going to buy new mine fleets. This is gravy right now,” Knutson told me.
Though other parts of the world — e.g. Eastern Europe — also depend on coal, the increase in demand will likely be confined to Asia, S&P analyst Wendy Schallom told me in an email. She expects “incremental coal generation in Europe in Q2 to be limited by both the reduced coal generating capacity and the seasonally low power demand,” she said.
That also means the long-term story of coal might not be disturbed if the market views the disturbance to LNG exports as essentially temporary. S&P’s long term forecast hadn’t changed, Schallom told me. While Knutson said that coal production is “going to be marginally higher going forward,” he added, “it’s not a game changer.”
