Even though thermal coal prices increased by nearly 50% this year, the effect on fuel switching is not enough to make the use of LNG economically viable for power generators. For coal-to-gas switching in Asia, analysts say that LNG would have to fall by another third from its recent lows around $6/mmBtu.
An oversupply on global LNG markets, with new supply coming from Australia and the US, combined with sluggish demand in key Asian markets such as Japan and South Korea, has seen the benchmark LNG price in Asia plummet from nearly $20/mmBtu in 2014 to less than $6/mmBtu.
Coal prices, meanwhile, strengthened in the course of this year after China imposed restrictions on its domestic mining capacity. Asian benchmark coal prices have subsequently risen this year to $73.60 per tonne, the highest since March 2015.
Yet, Reuters calculations indicate that coal would need to rise to $100 per tonne, or LNG to fall by another third, for the two main fossil fuels for power generation to achieve price parity.
This is unlikely to happen, since the price of coal has come under downward pressure since the Chinese government decided to relax its limits on coal mining earlier this week. With Asian coal prices bound to soften, the prospects of power generators switching from coal to gas for purely economic reasons now looks as remote as ever.