If you thought the surging price of fossil-fuel emissions in Europe would hurt coal demand, think again.
The highest prices for carbon credits in a decade have also lifted natural gas, discouraging power stations from making the switch away from coal. As a result, demand remains strong for the dirtiest fossil fuel in the continent that’s doing the most to clean up its economy. Coal prices as a result reached their highest in five years on Tuesday.
Gas futures would need to plunge by more than 20 percent before coal-fired power stations become uneconomic to run, based on current market prices for fuel and electricity, according to Georgi Slavov, head of research at broker Marex Spectron.
“This is highly unlikely” through at least November, Slavov said. “There are no plausible scenarios which support pricing out of coal.”
Front-year coal for delivery in Europe has been poised to push past $100 a ton for the first time in half a decade, lifting the cost of electricity across the continent. It’s already exceeded that level for nearer-term contracts.
Demand for coal in China and India is drawing in cargoes that otherwise would land at plants in Europe from the Netherlands to Germany. The Dutch front-year contract recovered from losses early in the year to rise almost 13 percent, climbing alongside gas and oil.
Gas-fired generators, Chinese importers of liquefied natural gas and storage sites in mainland Europe are all competing for the same shipments, stoking the cleaner fuel’s rally. There simply hasn’t been much spare gas supply to allow switching from coal because of carbon’s surge.
Chinese coal imports hit 29 million tons in July, the highest level since 2014, while the country’s electricity production hit a record 640.02 billion kilowatt-hours.
Global coal imports are set to reach record levels of 1.01 billion tons this year, exceeding 2013’s level, which was just below 1 billion tons, according to Guillaume Perret, founder and director of Perret Associates Ltd., a London-based research company.
“The coal market is now facing a structural shortage” of investment, including in mines and logistics, Perret said.