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As natural gas prices fall, coal’s comeback may be short-lived

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Snow lies in a residential area while smoke rises from the chimneys of a coal-fired power plant in the background in Korbetha near Halle, Germany, on a sub-zero day in December.

The high prices of natural gas in Europe have sparked a coal comeback. But now gas prices are falling. Above, a coal-fired power plant near Halle, Germany. Jens Schlueter/Getty Images

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The price of natural gas in Europe has fallen to lows not seen since before the Russian invasion of Ukraine in February.

Prices reached record highs as the year went on and as Russia cut gas exports to Europe after the European Union imposed a series of sanctions in response to the invasion.

Those high prices sparked a comeback for coal, which has served as a backfill energy source during these lean times.

Russia’s invasion of Ukraine helped reverse a decade of steady declines for the coal industry, said Cole Smead, CEO and portfolio manager at Smead Capital Management.

“Governments and economies have had to move back toward coal to meet the power and electricity needs that could not be met by natural gas,” he said.

That involved restarting coal-fired electricity plants that had been shut down and extending the lives of those whose days were numbered. But these boom times for coal might not last as prices for natural gas in Europe plummet, said Ellen R. Wald, president of Transversal Consulting and a fellow at the Atlantic Council’s Global Energy Center.

“One of the things that’s been very helpful is that in northwest Europe, we’ve seen some unseasonably warm weather through the winter,” Wald said. “And that’s reduced the demand for heating.”

It’s also been windy, which means plenty of renewable power is online. But even if the months ahead get colder, the recent stretch of milder weather has positioned Europe well.

“That’s allowed areas of the European continent to refill their natural gas inventories, which had been drawn down during previous cold snaps. So if that continues, then Europe will be in great shape,” Wald said.

And that could end coal’s record run, said Patrick McGinley, a professor at West Virginia University’s College of Law.

While he expects coal to remain in the energy mix, “it’s never going to recover to its former prominence,” he said.

That’s because before the natural gas crisis, many places had already started diversifying away from coal. And McGinley said there’s good reason to keep it that way: “Primarily, it’s international concern about climate change” and the environmental toll that he says mining and burning coal can have. So while coal has had a comeback this year, McGinley doesn’t think it will last.

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