Fighting in Iran has sent oil above $100 a barrel, roughly doubled LNG prices across Asia, and pushed coal higher too. When oil and gas grow costly, coal starts to look like the cheaper alternative, and the conventional wisdom holds that consumption will follow. In China, however, the way its coal market is structured means that outcome is far less certain than it looks.
China's coal market is heavily regulated, with the government controlling prices and production to ensure energy security and meet environmental goals. The country has been pushing to reduce coal use in favor of cleaner energy sources, a policy that predates the current crisis. The National Energy Administration has set targets to cap coal consumption and increase the share of renewables. As a result, even with higher oil and gas prices, the government may resist a major shift back to coal.
Moreover, China has been stockpiling coal and increasing domestic production to reduce reliance on imports. The country is the world's largest coal producer and consumer, but it has also been investing heavily in renewable energy. In 2023, China added a record amount of solar and wind capacity, and these sources are becoming more cost-competitive. The war in Iran could accelerate the transition to renewables as a hedge against fossil fuel price volatility.
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