A shift towards coal for power generation is among the viable alternatives to help countries reduce dependence on oil and gas and mitigate the ongoing impact of the energy supply crisis, according to a Wood Mackenzie note on Monday.
Amid indications of a prolonged Middle East conflict, countries are seeking to pare their oil and gas consumption, and technological options such as the wider adoption of electric vehicles would need time to have a "material impact," the analysis said.
"One option that can make a relatively rapid difference is shifting away from gas and towards coal for power generation," according to the note.
While there is a strong incentive to normalize energy export flows from the Gulf due to the region's vast, low-cost oil and gas reserves, there are indications that governments and companies are preparing for long-term disruptions to Gulf energy supplies.
"There has been a surge in interest in how to reduce countries' reliance on imports from the Gulf, whether by finding alternative sources of hydrocarbons or by reducing total consumption of oil and gas," the analysis said.
Several Asian and European countries, including Japan, South Korea, Italy and Germany, have considered or already enacted policy changes to ensure a delay in the retirements of coal-fired plants and to bolster coal generation.
According to the note, Australia and Indonesia are likely to emerge as the principal beneficiaries of stronger thermal coal markets, with producers in South Africa, the US, Colombia, and potentially Russia also likely to benefit.
The crisis will, however, not result in a coal renaissance and world markets and prices will likely return to pre-war levels by next year if a peace agreement to end the Iran war is reached soon, said Anthony Knutson, Wood Mackenzie's global head of thermal coal markets.
The crisis has slowed coal's decline, and fueled demand through the 2020s, but has not reversed the long-term trend towards lower-carbon energy.
Coal trade volumes are likely to remain near 1 billion metric tons per year through the rest of the 2020s, the analysis said.
A prolonged closure of the Strait of Hormuz could force a fundamental rethink of energy security and ensure a higher upside for coal demand.
According to the note, Saudi Arabia's East-West pipeline, which carries crude to the Yanbu terminal on the Red Sea, has emerged as the most important alternative for hydrocarbon exports through the Hormuz Strait.
Flow on the pipeline has risen to 7 million barrels per day, while oil exports from the Yanbu terminal averaged 4 million b/d in the first week of May, compared with about 735,000 b/d before the Iran war, Wood Mackenzie estimates showed.