Tensions triggered by the US and Israel's attacks on Iran and escalated by Tehran's retaliation have heightened risks to regional energy flows, pushing up natural gas prices and freight costs and triggering fuel substitution that has sharply driven up global coal prices.
Concerns over potential disruptions to oil and natural gas supplies passing through the Strait of Hormuz pushed gas prices higher, while rising shipping costs and logistical delays also contributed to higher coal prices.
This was reflected in record gains at the benchmark Newcastle and Rotterdam coal markets.
In Asia, benchmark Newcastle coal futures closed at $115.80 per ton on Feb. 27 and climbed to $138 on March 9, marking the highest level since December 2024. The contract settled at $133.65 per ton on March 10.
Similarly, the API2 Rotterdam coal benchmark rose from a closing price of $106 per ton on Feb. 27 to $132 on March 9, the highest level since May 2023. The market closed at $121 per ton on March 10.
Ufuk Alparslan, regional lead for Türkiye and Caucasus at Ember, told Anadolu that the cost of electricity generated from natural gas-fired power plants in the European Union rose by 51% in March.
In some countries, coal and gas serve as substitute fuels for electricity generation and as gas-fired generation becomes more expensive, power producers may switch from gas to coal, Alparslan said.
"This fuel substitution likely contributed to higher coal prices alongside rising gas prices. This should be seen as a symptom of fossil fuel volatility rather than a validation of coal's strategic importance," he noted.
Alparslan also emphasized that coal-fired power generation declined last year, even in countries heavily reliant on coal, including China, India, Germany, and Poland.
Renewable energy technologies are becoming cheaper and more reliable each year, he said.
"Current trend suggests that fossil price volatility and the vulnerability of gas and coal against geopolitical shocks threaten the energy security of countries relying on fossil fuel imports. It underscores that true energy security is home-grown clean energy," he added.
"Since renewable energy systems primarily involve high upfront investment but relatively low operating costs, an energy policy prioritizing renewables reduces exposure to global fuel market volatility and enhances long-term energy security," Alparslan explained.
- 'Coal remains cost-effective and most secure way to generate electricity'
Lars Schernikau, visiting fellow at the National Center for Energy Analysis, said the sharp rise in gas prices driven by physical supply disruptions in the Middle East has pushed prices higher across the entire energy mix, including coal.
"Coal remains the lowest cost and most secure and safest way to generate electricity, but nations should rely on a basket of energy-delivering resources depending on their own geological and geopolitical boundaries," he added.
Schernikau said coal cannot be removed from the energy mix without viable, low-cost, and reliable alternatives.
"The more we strive to eliminate coal, the more expensive and less reliable our power systems become," he said.
He added that recent volatility in oil and natural gas supplies and sharp price spikes in global energy markets have once again highlighted coal's role in energy systems.
"Coal generally has less geopolitical relevance. It cannot be bombed or explode, and it is available in all major regions of the world," he noted.
Schernikau said countries may need to maintain coal in their long-term energy portfolios to keep energy system costs low and ensure grid stability.
"In my personal view, countries should maintain coal in their energy portfolios not only for geopolitical reasons but also to keep energy system costs low and power grids stable and secure," he added.
By Basak Erkalan
Anadolu Agency
energy@aa.com.tr
