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Global coal prices have shot back towards record highs as the Ukraine crisis raises expectations that European buyers will start loading up on the fossil fuel for fear that a standoff between Russia and western nations will cut off gas supplies.

The benchmark Newcastle coal index has soared by over a third this month to $262 a tonne, fuelled initially by a month-long export ban by top supplier Indonesia and now by worries that any military engagement in Ukraine will sever gas supplies from Russia.

Europe relies on Russia for around 35% of its natural gas, and has been grappling with a gas shortage since last summer that sent local prices to record highs late last year.

Gas prices started to ease in recent weeks as imports surged, but have rallied again as the escalating tensions with Russia raise concerns about a potential supply disruption.

To protect themselves from any fuel shortages, European utilities have stepped up imports of coal, further tightening a market that has yet to recover from Indonesia’s shock ban that cut coal flows during the peak winter demand season.

“Spot cargoes are becoming scarcer in the near term, with movement towards Europe where prices are jumping due to gas prices and the simultaneous effect of the recent Indonesian ban,” said Puneet Gupta, founder of Indian coal marketplace Coalshastra.

While Europe’s coal use has declined sharply in recent years – accounting for just 6.2% of global coal use in 2020, according to BP data – European buyers have aggressively stepped up purchases since mid 2021.

Under pressure to meet climate targets, several EU countries have shut down old coal-fired power plants. Some countries retain coal plants for use for back-up supply but many have already been fired back up due to high gas prices.

According to commodity flows tracking firm Kpler, Europe is on course to import 5.58-million tonnes of thermal coal in January, the highest monthly total since November 2019, and over 1-million tonnes more than the monthly average in 2021.

The buying has helped coal prices snap back sharply after drifting off record highs struck last October on shortages in China and India amid extreme weather and post-pandemic industrial demand.

The rise in European consumption could squeeze out other buyers, especially in number two coal consumer India.

India will have to pay a higher price for seaborne coal as supply tightens in the coming weeks, said Rajendra Singh, managing director at Komin India Resources, a commodities trading firm.

“The Ukraine-Russia geopolitical issue will exacerbate the logistical challenges due to the coal ban by the Indonesian government,” Singh said.

Top coal consumer China gets roughly 90% of its supplies from domestic mines, making it better insulated from international market gyrations.

Even so, traders there remain wary of any lengthy disruptions to international coal flows given the country relies on coal for over 60% of its electricity.

In the Philippines, where coal also accounts for around 60% of electricity production, power producers have been told to use more domestic coal supplies where possible.

“For other power plants that solely rely on imported high-grade coal, there is no other recourse but to seek other sources of coal from nearby countries such as Australia, Russia and Vietnam,” said Arnulfo Robles, executive director of lobby group Philippine Chamber of Coal Mines.

“But the downside is that the supply of high-grade coal from these countries is more expensive given high freight costs,” he said.

The impact of the Indonesian ban has also been felt more on high-energy coal as replacement options are more limited, said Rory Simington, a principal analyst at Wood Mackeznie While prices should fall in February, the picture could change in the event of the cancellation of the Nord Stream 2 gas pipeline to Europe or an interruption to Russian coal exports, he said

As well as uncertainly over Ukraine, importers are still unclear over what to expect from Indonesia after authorities there said only miners that have complied with new domestic market sales regulations will be allowed to resume exports after the official ban expires on January 31.

Private power plants in India would “definitely be impacted” by the Indonesian coal ban, as the issue has not been fully resolved and Indian utilities mostly buy from small miners, said Kirit C Gandhi, joint president at Indian cement firm Shree Cement.

“If fresh loading is not allowed in the next five to ten days, there will be a further jump in prices. Consumers cannot wait any further because this is peak buying season,” Gandhi said.

Vasudev Pamnani, managing director of Indian consultancy Lavi Coal Info OPC, said buyers have “very few options, there are supply issues everywhere.”