Global Coal Demand Set for Record High in 2026 as Gas Prices Drive Fuel Switching

The Quick Take

• Global coal demand forecast to reach record levels in 2026 driven by high gas prices globally
• Fuel switching from expensive natural gas to coal increasing in power generation across Asia and Europe
• Record coal consumption poses tension with climate commitments despite renewable energy expansion

Global coal demand is on track to reach an all-time high in 2026 as elevated natural gas prices are prompting power generators across Asia and Europe to switch back to coal for electricity production where technical capability permits. The counterintuitive demand record occurs against the backdrop of rapid renewable energy capacity additions globally, but the intermittency of wind and solar power combined with high gas prices has created conditions in which dispatchable coal power remains economically attractive relative to alternatives during periods of high demand. The IEA or equivalent body projecting the record demand level cites gas-to-coal switching as the primary driver.

The economics of gas-to-coal switching have been particularly compelling in markets where coal import infrastructure is readily available and where power sector regulations permit fuel flexibility at thermal plants. In Germany, the Netherlands, and parts of Asia, the combination of elevated LNG spot prices and functioning coal logistics has meant that coal power dispatching has increased even as governments maintain long-term coal phase-out commitments. This creates a pronounced tension between the short-term economic logic of the power sector and the decarbonisation roadmaps that energy transition planning documents commit these economies to following.

For commodity investors, the coal demand record has positive near-term implications for seaborne thermal coal prices and for producers with export-oriented operations in Australia, Indonesia, and Colombia. However, the investment case for coal is complicated by the long-term structural demand decline implied by accelerating renewable energy penetration and policy-driven coal phase-out timelines in major consuming economies. Investors with ESG mandates face increasing difficulty justifying coal exposure even when near-term price signals are positive, while pure commodity investors weigh the current demand cycle against the stranded asset risk that looms over coal assets beyond the current decade.

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