The Australian Mining Review

Thermal coal demand is rising globally as countries scramble to secure energy supplies despite constrained trade flows through the Middle East.While the Strait of Hormuz remains the world’s most critical chokepoint for oil and gas, relatively little thermal coal trade passes through it directly and major coal exporters, including Australia, are not directly exposed to the route, according to Wood Mackenzie.Wood Mackenzie bulk commodities principal analyst Sushmita Vazirani says in supply shocks of this scale, coal becomes a critical fallback for energy security.“Despite decarbonisation commitments across Asia, tightening LNG supply and elevated prices are accelerating fuel switching back to coal,” she said.However, the current energy crisis has exposed the geopolitical dependency risks associated with using gas as a transitional fuel as higher gas prices drive fuel switching toward coal in price-sensitive markets across Asia and Europe, Wood Mackenzie said.Wood Mackenzie has found that in Northeast Asia, Coal-fired generation remains firm despite seasonal demand weakness in the region, supported by rising LNG prices.Taiwan is preparing to restart the Hsinta coal-fired power plant, which could consume about 5.5mtpa of thermal coal. South Korea has increased guidance for Russian coal imports, while Japan is expected to rely more on nuclear generation, including restarts such as Kashiwazaki-Kariwa Unit 6.Gas accounts for less than 3% of power generation in China, according to Wood Mackenzie, and the country remains relatively insulated from the current energy markets shocks.In Europe, the Italian Government has delayed its coal phase-out by 13 years to 2038 as its energy transition is tested by geopolitical shocks.Germany is also reportedly reviewing its current coal phase out strategy and is considering reactivating standby coal-fired power plants to reduce energy prices.However, the coal industry is not completely insulated from the impacts of rising fuel prices.Wood Mackenzie predicts that, for every US$10/bbl increase in crude oil prices, coal mine site costs increase by US$1–3/t, placing additional pressure on already tight supply .“Rising diesel prices are creating a cost squeeze for coal producers, just as markets call for more supply,” Ms Vazirani said.“In Australia, heavy reliance on imported diesel adds an additional layer of risk, potentially constraining output and tightening global markets.”The market is already seeing rising prices with FOB Newcastle 6,000kcal/kg coal averaging US$126/t in March before prices rose to US$132/t in early April, up from US$114/t in February, according to Wood Mackenzie data.