The world was expected to consume slightly less coal this year, but the war in the Middle East has changed that scenario. Disruptions to LNG shipments through the Strait of Hormuz have pushed up gas prices and encouraged some countries to increase the use of coal fired power plants. The International Energy Agency now forecasts a 1.2 percent increase in global coal demand, with worldwide consumption reaching a record 8.94 billion tonnes.
The initial outlook for the global coal market called for a modest decline in consumption in 2026. The situation changed, however, as the war in the Gulf disrupted energy markets. One of the most significant consequences of the conflict has been the reduction in liquefied natural gas shipments through the Strait of Hormuz, a critical route for global LNG trade.
Lower gas availability has pushed prices higher. In countries with both gas fired power plants and unused coal generation capacity, this has changed the economics of electricity production. With gas becoming more expensive, some operators have increased the use of coal fired units, even though earlier forecasts assumed that their role would continue to decline.
According to the IEA, this trend is visible across several major markets. Coal consumption is expected to be higher than previously forecast in Europe, Japan, South Korea and China. The latter two markets are particularly important because they are among the world’s largest energy consumers, while their demand for imported fuels can quickly affect international commodity markets.
The IEA’s updated forecast calls for global coal demand to increase by 1.2 percent this year. As a result, worldwide consumption is expected to reach 8.94 billion tonnes, the highest level ever recorded.
This is a significant change from the previous outlook. Before the current disruptions emerged, the agency expected global coal demand to decline slightly. Coal was expected to gradually lose importance as renewable energy expanded, energy efficiency improved and some coal fired generation was replaced by gas. Higher gas prices have shown, however, that the pace of this transition still depends heavily on the security and cost of fuel supplies.
Power generation is not the only source of additional coal demand. The IEA also points to higher coal use in China for the production of chemical products. High oil prices have changed the economics of some industrial processes. Given the scale of China’s chemical industry, even a relatively limited change in demand in this sector can translate into millions of additional tonnes of coal consumption.
Weather could provide another boost
The coal market is also being affected by factors unrelated directly to the war. The IEA points to the possibility of a strong El Niño event this year. Its consequences could be particularly important for Asian economies, where periods of high temperatures increase the amount of electricity required for cooling.
India and Vietnam are among the countries that could be affected. If temperatures rise, power systems will need more electricity for air conditioning, while potentially lower hydropower generation could reduce the availability of another important energy source. Under such conditions, coal fired power plants may have to provide additional generation.
In practice, this means that the expected record in coal consumption is not the result of a single event. Restrictions on gas supplies, high prices for other fuels, conditions in China’s industrial sector and weather patterns affecting both electricity demand and hydropower generation are all contributing to the change.
What happens to coal in 2027?
The outlook for next year is much more uncertain. A key factor will be whether shipping through the Strait of Hormuz returns to previous levels. If LNG deliveries recover and natural gas prices return towards their pre war levels, some power generators could once again switch from coal to gas. In that scenario, global coal demand could decline in 2027.
If the strait remains largely closed to LNG traffic, however, the situation could be very different. Limited gas supplies could keep prices elevated, making coal fired generation a more attractive alternative for some operators. The IEA therefore does not rule out another increase in global coal demand if the disruption continues.
This relationship illustrates how closely connected global fuel markets have become. A disruption affecting one fuel does not necessarily remain confined to that market. When gas becomes scarce and expensive, consumers look for alternatives, increasing demand for other energy sources.
Paradoxically, record coal consumption this year will not be accompanied by higher global production. The IEA expects output to decline, although it will remain above 9 billion tonnes. This will be the third consecutive year in which global coal production exceeds that threshold.
China is the most important factor. The country is the world’s largest coal producer, but its output has been reduced following a serious mining accident in May. Subsequent safety inspections have resulted in significant restrictions on coal production.
At the same time, demand remains high. This means the gap between global production and consumption is narrowing. In recent years, the world has accumulated substantial coal inventories, but stronger consumption combined with lower production should significantly slow the pace at which those inventories grow.
China will remain crucial for the market next year
The IEA expects global coal production to increase slightly in 2027. The main driver should be a recovery in Chinese output after the period of restrictions related to mine safety.
At the same time, international markets could see stronger demand for imported coal. If domestic production in China remains below earlier expectations, part of the country’s requirements will have to be met through imports. Additional demand is also expected from Japan and South Korea, where high gas prices have already led to greater coal consumption.
The combination of limited supply and stronger demand is also affecting prices. If producers cannot increase output quickly enough while importers need additional volumes, upward pressure on coal prices could persist even after this year’s record consumption.
The energy transition does not follow a single scenario
The record 8.94 billion tonnes shows that global coal demand is not driven solely by long term climate policy. Investment in renewables and the gradual shift away from fossil fuels remain important trends, but in the short term the use of individual fuels can be determined by supply security, gas prices, geopolitical developments, hydropower generation and weather conditions.
This year’s market provides a particularly clear example of the relationship between gas and coal. Restrictions on LNG shipments through one of the world’s most important transport routes have pushed up gas prices, increasing the economic attractiveness of existing coal fired power plants. At the same time, lower Chinese production means that higher demand is emerging in a market where supply is becoming tighter.
That is why the future of coal cannot be measured solely by the number of new coal fired power plants being built. Just as important is how long existing units will remain necessary as a safeguard against shortages of other fuels. This year’s record demonstrates that even amid a long term shift away from coal, the market can be rapidly redirected by geopolitical events and disruptions to gas supplies.
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