Global Gas Crunch Profits Europe’s Remaining Coal Plants
Europe’s ongoing gas supply shortage has unexpectedly increased the profitability of its remaining coal-fired power plants, particularly in Germany and Poland. With LNG flows through the Strait of Hormuz limited and natural gas prices soaring to levels not seen since the 2022-2023 crisis, coal plants have become essential for grid stability as the continent braces for winter.
Coal’s Resurgence Amid Gas Supply Challenges
In recent years, many European nations, including Germany, have shut down coal power stations to meet ambitious climate and decarbonization goals. However, the current energy landscape has forced a reversal in this trend. The remaining coal facilities, particularly lignite-fired plants, are now generating electricity profitably again due to persistently high gas prices and the need for alternative power sources amidst gas conservation efforts.
Estimates show that in Germany the profitability of power generation from lignite surged to approximately $72 (64 euros) per megawatt-hour (MWh) in October 2026, compared to negligible returns in the same period last year. Energy market analysts anticipate these profit margins to remain elevated through March, reflecting continued market tightness.
IEA Projections on European Coal Demand
The International Energy Agency (IEA), in its Coal Mid-Year Update 2026, highlighted that although European coal consumption continues its long-term decline, the rate of reduction is slowing. The agency revised its forecast for coal demand in Europe to 276 million tons for 2026, slightly down from 292 million tons in 2025 but above previous projections.
The incremental coal use is largely attributed to persistently high gas prices restricting gas-fired power generation, especially in countries with remaining coal capacity like Germany and Poland. Furthermore, colder weather periods during the upcoming winter season may temporarily boost coal consumption beyond earlier expectations, especially following disruptions in oil and gas markets caused by geopolitical tensions in the Middle East.
Why This Matters for Pakistan
Pakistan, facing its own energy challenges with potential winter gas shortages if LNG supplies remain disrupted at the Strait of Hormuz, can extract important lessons from Europe’s current experience. The reliance on coal as a backup during gas supply squeezes highlights the complexities of transitioning to cleaner energy while maintaining grid reliability. For Pakistan, diversifying energy sources and securing LNG imports remain vital priorities to mitigate winter demand crises.
As global energy markets remain volatile due to geopolitical instability, Pakistan’s energy planners may consider the strategic value of maintaining flexible generation capacity, including coal and renewables, to avoid critical power shortfalls.
“The spreads are expected to stay high through March,” noted Sabrina Kernbichler, analyst at Energy Aspects, underscoring the sustained importance of coal amid the gas crunch in Europe.
