Coal Demand Forecast to Rise on Gas Price Pressure

Global coal demand is set to rise by 1.2% this year, reaching 8.94 billion tonnes, reversing the previous expectation of a slight decline. The International Energy Agency (IEA) attributes this upward revision to elevated natural gas prices and weather-related pressures that are driving greater reliance on coal-fired power generation. This shift marks a significant pivot from earlier forecasts, indicating that structural and market forces are currently favoring fossil fuel consumption over renewable or gas-based alternatives in key industrial markets.

The 2025 baseline for this growth saw coal demand increase by 0.3% to 8.84 billion tonnes. This expansion occurred despite a historic drop in coal-fired generation in both China and India, the first such decline in approximately five decades. In China, the reduction was driven by rapid renewable energy deployment, while an unusually strong monsoon season in India suppressed thermal output. Additionally, a global downturn in steel production further limited coal consumption in heavy industry, yet these factors were outweighed by rising demand in other regions and sectors.

Geopolitical disruption fuels thermal substitution

The primary driver for the increased 2026 outlook is the ongoing conflict in the Middle East, which has disrupted Liquified Natural Gas (LNG) shipments through the Strait of Hormuz. These supply interruptions have pushed natural gas prices higher, making coal a more cost-competitive option for electricity generation in markets with available capacity. This economic logic is compelling utilities to switch fuel sources, directly translating geopolitical risk into higher coal consumption volumes.

Regional dynamics further support this trend. US coal consumption has risen due to strong electricity demand, high natural gas prices, and supportive policy frameworks. Meanwhile, coal-intensive industries are seeing growth, particularly in nickel production in Indonesia and coal-to-chemicals operations in China. These industrial expansions create a rigid base of demand that is less sensitive to short-term price fluctuations, anchoring the global consumption floor.

Weather patterns amplify Asian power needs

Climatic factors are also expected to boost coal usage, with a strong El Niño event forecast to increase cooling demand across parts of Asia. Simultaneously, reduced hydropower generation in these regions will likely force utilities to ramp up thermal plants to meet peak load requirements. This dual pressure of higher demand and lower renewable output creates a direct operational necessity for coal-fired generation, reinforcing the upward trajectory of global demand.

Long-term outlook hinges on LNG flows

The 2027 forecast remains uncertain and heavily dependent on the recovery of LNG supply chains. If gas prices fall and LNG flows normalize, global coal demand could decline by 0.4% to 8.91 billion tonnes. Conversely, continued disruptions to gas supplies will likely sustain or further increase coal consumption. Market participants, including those tracking energy-stocks: natural gas demand, must monitor these geopolitical and climatic variables closely, as they dictate the competitive balance between fossil fuels and alternative energy sources in the near term.