Coal prices spike as Europe searches for alternatives to Russian energy

Along with natural gas and oil, coal prices are surging since Russia’s invasion of Ukraine, as Europe looks for alternatives to Russian fossil fuels. European thermal coal prices have more than doubled since the start of the war in Ukraine — from $186 per metric ton on Feb. 23, to $462 by March 10 — according to an analysis based on the Rotterdam benchmark by Rystad Energy, an Oslo-based energy research company. Prices moderated since last week but still remain twice as high as before the invasion.

Australia’s Newcastle futures contract, a benchmark for Asian prices, touched $440 per ton on March 2, and remained above $400 last week.

The skyrocketing price is a result of already tight global coal supplies tightening further as western sanctions made it difficult to trade Russian coal. Russia is the third-largest exporter of coal.

“There is simply an almost complete absence of surplus thermal coal available globally,” Steve Hulton, vice president for coal at Rystad Energy, said in a statement. Hulton projected that coal prices could breach $500 a ton.

According to OilPrice, an energy trade publication, futures prices for Europe show average prices at around $350 a ton in the second half of the year.

In Europe, coal prices could be good for renewables

High natural gas prices had driven Europe toward coal since mid-2021, only to find that once the invasion began, there was little coal to buy on the global market. According to Eurostat, the EU imported the largest share of both natural gas and coal from Russia — 41% and 47% respectively, in 2019. Europe has laid out a plan to drastically reduce consumption of Russian natural gas this year.

European countries are looking further afield to source coal, to South Africa, the US, or Australia and Indonesia, and recalibrating the pace in which they are decommissioning coal. Germany is considering slowing down its coal phase-out, France has raised the cap of running coal-fired power stations, and Italy could reopen recently closed plants.

The US government’s Energy Information Administration expects coal exports, driven by Europe’s demand due to the conflict, to increase for at least the next two years. S&P Global predicts coal generation in Europe to reach 15 gigawatts this year, up from 8 GW in 2020.

While Europe’s scramble for energy isn’t great for reducing emissions in the short term, the high fossil fuel prices could help speed up renewable development as countries become painfully aware of the vulnerabilities of energy dependence. On Feb. 28, Germany announced it would funnel $220 billion to transitioning to 100% renewables by 2035, 15 years earlier than previously planned, citing the need for energy sovereignty.

China warned against buying Russian coal

For Russia to make up for the loss in exports to Europe, China would have to increase its imports of Russian coal.

However, China sources 90% of its coal domestically. Though China is Russia’s largest coal buyer, only about 15% of its imports came from Russia in 2021. In addition, Chinese banks have discreetly advised their clients — steelmakers and power plants — not to buy Russian coal due to mounting sanctions, according to a report by Bloomberg.

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