- LNG supply shock persists, energy prices elevated
- Coal tightens on fuel switching and supply constraints
LNG supply remains severely disrupted
The Middle East crisis has intensified over the past 24-48 hours, with the market now shifting from a short-term disruption narrative to a prolonged supply shock. Damage to key LNG infrastructure, particularly at Qatar’s Ras Laffan export hub, is expected to take months to repair, extending uncertainty around global gas supply.
LNG exports from the Persian Gulf remain sharply curtailed, averaging just 50KT/day over the past five days, or around 12% of normal levels. Spot LNG prices into North-East Asia remain elevated at around $19.14/MMBtu (million british thermal units), although slightly lower than the previous spike above $20/MMBtu.
European gas markets have reacted strongly, with the TTF Q2 contract rising to €60.7/MWh after an intraday spike to €67/MWh. Storage levels remain low at 28.9%, increasing pressure on early restocking ahead of winter. Brent crude continues to trade firm at around $110/bbl, reinforcing the broader energy complex strength.
Physical coal prices catch up with paper
Coal markets are now responding more decisively to the tightening gas environment. Spot FOB Newcastle 6000 has moved up to $140/t, with trades confirmed at this level for May-loading cargoes. This marks a sharp move from earlier in the week, when offers were closer to $125/t.
Financial markets had already priced in the tightening. The Q2 Newcastle contract is now at $147.5/t, while Cal 2027 has moved to $146.5/t. The gap between physical and financial markets is narrowing as buyers return to secure prompt cargoes.
Other benchmarks are also firming. FOB Richards Bay 6000 is up to $114/t, while 5700 and 5500 grades are assessed at $111.5/t and $100.25/t respectively. Indonesian 4200 GAR has edged up to $61/t, although export volumes remain below normal levels at around 970KT/day.
At the same time, lower-grade coal markets remain relatively stable. Newcastle 5500 continues to trade around $88.5/t, widening the spread with 6000 kcal coal and increasing incentives for coal washing, although capacity remains limited.
Indonesia’s HBA index for H2 March remains mixed, with 6,322 kcal coal assessed at $103/t, broadly flat month-on-month but still significantly lower year-on-year, indicating that official benchmarks are lagging spot market strength.
Fuel switching extends to India as petcoke supply tightens
The impact of the Middle East crisis is now also being felt in India’s industrial fuel markets, particularly through the availability of petcoke. Disruptions to refinery operations and shipping flows from the Gulf have tightened petcoke supply, pushing prices higher and reducing availability for Indian buyers.
In response, cement manufacturers are increasingly turning toward high-CV coal, particularly US-origin NAPP material. During the week, multiple Indian cement companies secured US NAPP cargoes for April loading at around $145-146/t CFR India, as coal became more competitive than petcoke on a calorific basis.
This shift is being reinforced by the relative economics. US Gulf petcoke has been offered at around $165/t CFR West Coast India, making high-CV coal the preferred option for kiln operations. As a result, demand for US coal has strengthened at a time when availability remains limited, tightening the physical market further.
Freight markets tighten as bunker constraints disrupt shipping
Freight is increasingly emerging as another casualty of the ongoing conflict. Disruptions to oil supply and refining operations in the Middle East have tightened bunker fuel availability, while higher crude prices have pushed bunker costs sharply higher.
This has led to a noticeable increase in freight rates across key coal routes. Vessel operators are facing longer waiting times at ports due to fuel shortages, while higher bunker costs are being passed through into freight offers. Routes such as US East Coast to India have already seen freight quoted close to $48/t for May loading, significantly above normal levels.
The result is a compounding effect on delivered coal prices. Even where FOB coal prices remain competitive, rising freight is pushing up CFR levels and reducing arbitrage opportunities. At the same time, tighter vessel availability is limiting the number of prompt cargoes in the market, reinforcing the physical tightness already developing.
Early signs of gas-to-coal switching in Asia
On the demand side, initial signs of fuel switching are beginning to emerge, although uneven across regions.
In South Korea, January power generation rose to 55.2TWh, with coal-fired output up 28% year-on-year. Gas-fired generation also increased, but this was prior to the escalation in the Middle East. With LNG supply now constrained, gas generation is expected to decline from March onwards, supporting coal demand. South Korea remains in active restocking mode, with coal imports increasing.
In the Philippines, near-term demand remains weaker, with January generation down 10% year-on-year. However, coal import forecasts for Q1 have been raised to 9.5mt, reflecting expectations of delayed demand recovery and gas-to-coal switching once existing inventories are drawn down.
Supply constraints limit response despite rising prices
Supply-side response remains limited despite stronger prices. US thermal coal exports were down 5% year-on-year in January at 3.2mt, with only marginal growth expected in the coming months due to production constraints.
Colombian exports also remain constrained, falling 9% year-on-year in February. While export forecasts have been revised slightly higher, both regions are expected to show limited elasticity, reinforcing tightness in the physical market.
Physical market tightening as crisis persists
The market is increasingly pricing in a longer-duration disruption across energy markets. LNG supply remains constrained, coal prices are catching up with financial markets, and fuel switching is extending across both power and industrial sectors.
At the same time, rising freight and logistical constraints are amplifying the impact of supply tightness, pushing delivered prices higher and limiting prompt availability.
In this environment, the focus is shifting toward physical availability rather than benchmark pricing. Prompt cargoes are attracting premiums, and the advantage remains firmly with participants holding physical supply as the market adjusts to a more sustained energy shock.
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