Coal

IEA: Rising natural gas prices spur global coal demand

Global coal demand is set to rise next year spurred by slowing growth of major economies and soaring natural gas prices.

IEA: Rising natural gas prices spur global coal demand
(Photo by Joey Harris on Unsplash)

This article was originally featured on our partner publication Power Engineering International.

Global coal demand is set to rise next year spurred by the slowing growth of major economies and soaring natural gas prices brought on by the European energy crisis.

A new report released by the International Energy Agency (IEA) shows that coal consumption is set to rise in 2022, taking it back to the record level it reached nearly a decade ago.

Rising gas prices have intensified gas-to-coal switching in many countries. According to the Coal Market Update report, this has resulted in coal becoming more competitive in many markets, with prices reaching three all-time peaks between October 2021 and May 2022.

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Coal demand rises despite market disruption

The rise in coal demand will occur despite market disruption caused by sanctions on Russian coal, according to the report. As other coal producers stand in the gap caused by these sanctions, prices on coal futures markets indicate that tight market conditions are expected to continue well into next year and beyond.

The report highlights however that the disruption and turmoil in coal markets in recent months will negatively impact countries where coal remains a key fuel for electricity generation.

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Key report findings:

  • Global coal consumption is forecast to rise by 0.7% in 2022 to 8 billion tonnes, assuming the Chinese economy recovers as expected in the second half of the year. This global total would match the annual record set in 2013, and coal demand is likely to increase further next year to a new all-time high.
  • Demand for coal in India has been strong since the start of 2022 and is expected to rise by 7% in response to economic growth and increased demand.
  • In China, an expected increase in the second half of the year is likely to bring coal consumption for the full year back to the same levels as last year.
  • Coal consumption in the European Union is expected to rise by 7% in 2022 on top of last year’s 14% jump, driven by the increased use of coal as a replacement for gas in the electricity sector.

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Several EU countries are extending the life of coal plants scheduled for closure and reopening closed plants in an effort to reduce gas consumption.

These efforts are ramping up after the European Commission passed the ‘Save Gas for a Safe Winter’ package, requiring all member states to reduce gas consumption by 15% by March 2023.

Russia has increased coal exports to Europe from 21 million tonnes in 2000 to 68 million tonnes in 2021, gaining more than 50% share of the market compared to 11% in 2000. However, that supply must be replaced from mid-August when the EU ban on Russian coal imports comes into force. Europe will then look to countries including Australia, South Africa and Colombia to fill the supply gap.

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