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Prolonged disruption to energy supplies in West Asia is driving a renewed surge in global thermal coal demand and prices, as countries turn to coal to secure power amid constrained liquefied natural gas (LNG) flows through the Strait of Hormuz, according to a new analysis by Wood Mackenzie.
Coal benchmark prices have risen sharply in recent weeks. Free-on-board (FOB) Newcastle 6,000 kcal/kg coal averaged $126 per tonne in March 2026, with recent trades reaching $132 per tonne, up from $114 per tonne in February. Other benchmarks have followed a similar trajectory, with FOB Richards Bay prices averaging around $110 per tonne and cost-and-freight (CFR) Amsterdam-Rotterdam-Antwerp (ARA) prices touching $123 per tonne amid heightened gas market volatility.
“In supply shocks of this scale, coal becomes a critical fallback for energy security,” said Sushmita Vazirani, principal analyst for Bulk Commodities at Wood Mackenzie. “Despite decarbonisation commitments across Asia, tightening LNG supply and elevated prices are accelerating fuel switching back to coal.”
While the Strait of Hormuz, a 167-km energy chokepoint handling a fifth of global oil flows, remains the world’s most critical transit route for oil and gas, only a limited share of global thermal coal trade passes through it directly. Major exporters such as Australia, Indonesia, Russia, South Africa and Colombia are not directly exposed to the route.
However, the disruption has had significant indirect effects. Reduced LNG availability has driven up gas prices globally, prompting utilities and industrial users, particularly in price-sensitive markets, to switch back to coal for power generation.
This shift is most evident across Asia and Europe, where energy security concerns are increasingly outweighing short-term decarbonisation goals.
Across East Asia, coal-fired generation has remained resilient despite seasonal demand weakness, supported by high LNG prices. Taiwan is preparing to restart the 2.1-gigawatt Hsinta coal-fired power plant, which could consume around 5.5 million tonnes of coal annually.
South Korea has revised guidance to increase imports of Russian coal, while Japan is expected to lean more heavily on nuclear generation, including restarts such as the Kashiwazaki-Kariwa Unit 6 reactor, to reduce dependence on costly LNG.
In China, the impact is more muted. With natural gas accounting for less than 3 per cent of power generation, the country remains relatively insulated and continues to rely on domestic coal production to meet demand.
India, however, is seeing a clear shift. Elevated LNG and petroleum coke prices are pushing industrial consumers back toward coal as a primary fuel, reinforcing the country’s structural dependence on coal for energy security.
In Europe, countries such as Italy are considering restarting coal-fired capacity. The Amsterdam-Rotterdam-Antwerp (ARA) market remains particularly exposed due to its reliance on gas imports, amplifying the shift toward coal amid supply uncertainty.
At the same time, supply-side pressures are intensifying. According to Wood Mackenzie, pre-disruption marginal production costs of around $112 per tonne are expected to rise further, driven in part by increasing crude oil prices.
For every $10 per barrel increase in crude oil, coal mine site costs rise by $1-3 per tonne, largely due to higher diesel prices used in mining operations and transportation.
“Rising diesel prices are creating a cost squeeze for coal producers, just as markets call for more supply,” Vazirani said. “In Australia, heavy reliance on imported diesel adds an additional layer of risk, potentially constraining output and tightening global markets.”
This combination of rising demand and constrained supply is likely to keep coal prices elevated in the near term, even as longer-term decarbonisation policies remain in place.
The resurgence of coal highlights the persistent tension between energy security and climate commitments. While many countries across Asia and Europe have pledged to reduce coal dependence, current market conditions are forcing a temporary reversal.
With LNG markets under strain and geopolitical risks persisting, coal is once again emerging as a fallback fuel, underscoring the fragility of the global energy transition in the face of supply shocks.