Russell: Iran tensions are a factor in making thermal coal more affordable than LNG.
The escalating conflict in the Middle East may result in thermal coal being a major winner, since the fuel used for electricity generation is now cheaper than its main competitor liquefied gas (LNG).
The threat of crude oil and refined fuels being shipped through the Strait of Hormuz is a major concern of those who are concerned about the possible fallout of the conflict between Israel and the United States and Iran.
All of Qatar's LNG is also transported through the narrow waterway that separates the Gulfs of Persia & Oman. This amounts to nearly 20% of global seaborne supplies of super-chilled diesel fuel.
The price of LNG has risen in Asia's biggest market despite the fact that there has been no disruption to Qatar's LNG. This is due to the threat from Iran to try to block the Strait or to attack shipping.
Delivery of LNG to North Asia
The weekly price assessment was also conducted before the United States joined Israel in its bombing campaign of Iran. On June 21, President Donald Trump claimed that the strikes "completely and completely obliterated three nuclear facilities."
As a result of the United States' involvement, it is more likely that LNG will continue to increase in price to reflect an increased risk premium.
Even at its current price, LNG is not competitive with thermal coal on the two main markets where fuel switching can take place, Japan and South Korea.
ADVANTAGE COAL
According to globalCOAL, the price of Australian thermal coke with a content of energy of 6,000 Kilocalories per kilogram in Newcastle Port reached a four-month peak of $109.41 per metric ton during the week ending June 20.
This is the most common grade of thermal coal used in Japan, South Korea and Taiwan.
Using LSEG to convert coal prices into British thermal units, the benchmark price for Australia's Newcastle is around $12.18 or a 13 percent discount on the spot LNG price.
The price of spot LNG dropped to $11 per million Btu in early May, making it cheaper than Newcastle coal at $11.47.
In recent weeks, spot LNG prices rose more than coal. This trend is expected to continue as long as tensions in the Middle East remain high.
It's too early to determine if Japan and South Korea are buying more coal than usual.
There are signs that coal imports have begun to rise. According to commodity analysts Kpler, Japan's arrivals in June were 6.57 million tonnes, up from the 6.39 million tons recorded in May.
Kpler has already estimated that Japan's thermal coke imports would jump to 7,23 million tons. This would be the highest since March.
As more cargoes get assessed, it's possible that the July number could be revised upwards.
The imports of thermal coal from Japan are also affected by seasonality. They tend to increase during the peak winter and summer demand periods.
It is important to compare the changes from year to year to determine if Asia’s third largest coal purchaser is actually buying more fuel.
Japan imported 10.05 million tons of thermal coke in July of last year. Given that the volume of coal already estimated for July of this year is greater than 70% of this total, imports are likely to increase next month compared to July 2024.
Natural gas is not widely used in India and China, Asia's largest coal importers.
On a longer term note, both countries will likely view the current unrests in the Middle East to be another compelling reason to reduce their dependence on imported crude oil as quickly as possible.
It's unlikely that they would abandon this path if it meant using their large domestic coal reserves, supplemented with imports, in order to electrify transport at a faster rate, despite climate change concerns.
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These are the views of the columnist, an author for.
(source: Reuters)
