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Iran War Is Breathing New Life Into Coal

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It would be nice to think that the soaring oil and gas prices spurred by
the Iran War would redouble global efforts to switch to renewable energy
at least the easiest way to hedge against hydrocarbon disruption. 

The price of benchmark Newcastle coal has jumped more than 10% since the
U.S. and Israel started bombing Iran on Feb 28. The Range Global Coal
exchange-traded fund has gained 7%, against 2% for the iShares Global
Clean Energy ETF. 

Coal, the carbon belcher of fossil fuels, still powers a third of the
world’s electricity, despite rapid expansion of renewables. 

“Coal is quite sticky in the energy space,” says Anthony Knutson, global
head of thermal coal markets at consultant Wood Mackenzie. “It will
continue to be important for the next decade or two.” 

None of that has much to do with U.S. President Donald Trump’s
vociferous enthusiasm for coal power. The top economy’s coal consumption
has dropped by two-thirds since a 2007 peak and now accounts for less
than 5% of global demand, according to the International Energy Agency.
Most of the rest goes to Asia. 

Coal use inched down for the first time last year in China and India,
the two consuming giants, but keeps rising elsewhere in the East Asian
growth belt, says Noah Kaufman, a senior research scholar at Columbia
University’s Center on Global Energy Policy. “Coal is mostly a growth
story in Asia,” he notes. 

Asia is also the top customer for liquefied natural gas from Qatar,
which is now locked in by Iran’s effective blockade of the Strait of
Hormuz. 

Taiwan is already “looking at restarting mothballed coal plants,”
Knutson says. Regional neighbors could follow suit if the LNG price
spike lasts much longer. “LNG was seen as a somewhat stable alternative
to coal,” Kaufman observes. “Probably less so now.” 

Mining companies are still less than keen on investing in coal. Global
capital expenditure on the mineral has plunged by two-thirds since 2010
to about $5 billion last year, says James Whiteside, Wood Mackenzie’s
head of corporate research. 

Big diversified miners like BHP and Rio Tinto have shed heating coal
assets, with one eye on demand projections and the other on investors
who won’t touch the most-polluting fuel on environmental, social, and
governance grounds. 

Leading the buyers’ list have been Australian coal-focused pure plays
like Yancoal and Whitehaven Coal. Both stocks are up by double digits
since war came to the Persian Gulf. 

Glencore, the No. 3 global miner, has bucked the trend, adding coal
assets and leaning on the commodity as a major profit source. That
helped scuttle its recent failed merger talks with Rio Tinto by “making
the valuation tricky,” Whiteside says. 

In the medium term, global coal demand and supply look roughly in
balance, Knutson says, though shortages may loom in the 2040s unless
investment picks up in the next decade. 

Two megatrends could affect that long-term calculus in opposite ways.
China, which burns half the world’s coal, might shift to solar and other
renewables ahead of schedule, reducing demand. The rush to build
artificial-intelligence data centers across the globe, on the other
hand, will increase the hunger for power, and any fuel available. 

“Data centers will need more of everything,” Kaufman says. “Any claims
that getting rid of coal would be easy have clearly been shown to be off
base.” 

https://www.barrons.com/articles/iran-war-coal-china-us-d448d83b

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