Introduction: Energy Crisis Global 2023-24

Pakistan is currently facing a complex energy crisis. It has extended into political turmoil and economic stagnation. The power sector is a major factor in this crisis. It is plagued with inefficiencies that have driven electricity prices and coal prices to high levels. So, they are unaffordable for many citizens.

Public demonstrations against rising coal and electricity costs highlight widespread dissatisfaction. While on the other hand economic disparities are worsening due to an increasing dependence on external debt. In this context, Independent Power Producers (IPPs) are crucial to shaping the future of the country’s energy landscape. Circular debt in the power sector surged to Rs 2,310 billion in May 2024. It may also expand as payments owed to IPPs approach Rs 1,800 billion. This situation underscores the urgent need for reforms to address the inefficiencies, mismanagement, and lack of transparency. So, it is affecting the power sector in true means.

The 2023-24 energy crisis global marked a period of substantial upheaval in global energy markets, driving coal prices to unprecedented levels. This surge was fueled by a combination of geopolitical tensions, post-pandemic supply chain issues, and an urgent need for energy security, particularly in Europe. While the crisis brought coal back into focus, it underscored the need for resilient and diversified energy sources. In this article, we examine the factors behind the 2023-24 coal price surge, analyze current market trends, assess logistics challenges, and provide a forecast for coal’s role in the global energy mix.

Causes of the 2023-24 Energy Crisis

1. Geopolitical Tensions
   The Russia-Ukraine conflict severely impacted global energy markets. With sanctions on Russian energy exports, Europe had to pivot to alternative fuels, including coal, to meet immediate energy needs. This shift in demand strained global coal supplies, pushing prices to record highs as Europe scrambled to secure energy resources.
2. Supply Chain Disruptions
   

   The COVID-19 pandemic’s lingering effects continue to disrupt global supply chains in 2023 and 2024. It’s also a major cause of the 2023-24 energy crisis global gradually. High shipping costs, labor shortages, and port congestion affected coal transport worldwide, making it difficult for suppliers to meet surging demand as economies recovered.

3. Energy Security Concerns

   As natural gas supplies were curtailed, particularly in Europe, countries reverted to coal to ensure energy stability. Germany, Poland, and other European nations increased coal imports to prevent power shortages, further driving up demand and prices.

Current Coal Market Trends in 2024

As of 2024, coal prices have moderated but remain elevated compared to pre-crisis levels.

• Global Coal Prices: The international price for thermal coal stands at approximately $145 per metric ton. Although prices have declined from the 2022 peak, they remain high due to ongoing demand from Asia, where coal is essential for industrial energy.
• Coal Prices in Pakistan: In Pakistan, coal prices are currently around $115 per metric ton. Local currency depreciation and high import costs have kept coal prices high, impacting sectors such as cement, steel, and power generation, which are heavily reliant on this energy source.
• Demand and Consumption Patterns: Demand for coal remains strong in China and India, while European countries continue to use coal as a supplementary energy source, especially during periods of lower renewable energy output.

Logistics and Transportation Challenges

Logistical issues have been a significant factor in maintaining high coal prices, even as the initial crisis has eased.

• Shipping Costs: Shipping costs remain elevated, driven by fuel prices and container shortages. For coal, which relies heavily on maritime transport, these factors contribute significantly to the end-user price.
• Domestic Transport Costs: In countries like Pakistan, the cost of transporting coal from ports to industrial centers adds considerably to its final price. Rising fuel costs further exacerbate these expenses, impacting industries that rely on coal for production.
• Supply Chain Vulnerabilities: While global supply chains have stabilized, challenges persist, particularly in coal transport. Port congestion and regional disruptions continue to affect coal availability and pricing, creating occasional supply-demand imbalances.

Economic and Environmental Impacts

Economic Impact

1. Inflation and Production Costs: The rise in coal prices has led to inflationary pressures in energy-dependent economies. Higher coal costs have increased electricity prices, impacting manufacturing and construction sectors and driving up the cost of goods and services.
2. Financial Strain on Developing Nations: For developing countries reliant on imported coal, high prices have strained government budgets. In nations like Pakistan, this has limited the ability to allocate resources to other critical areas, slowing economic recovery post-pandemic.

Environmental Setbacks

The temporary return to coal during the crisis has complicated global climate goals. As countries focused on securing short-term energy supplies, coal consumption surged, leading to higher carbon emissions and delays in the transition to cleaner energy sources.

Future Forecast for Coal Prices and Market Dynamics

Looking ahead, several trends are expected to shape the coal market:

1. Declining Demand with Renewable Growth: As investments in renewable energy accelerate, global demand for coal is expected to decrease gradually. Nations aiming for carbon neutrality by 2050 are focusing on reducing coal dependency, which should help stabilize prices in the long term.
2. Price Forecast: Industry forecasts predict a gradual decline in coal prices over the next few years. The World Bank anticipates a 28% drop in coal prices in 2024 and an additional 12% decrease by 2025, assuming stable supply and a continued shift toward renewables.
3. Energy Security Initiatives: Countries are taking steps to diversify their energy mix and build strategic reserves. In Europe, for example, efforts to reduce dependence on imported coal are leading to increased renewable investment and improved energy infrastructure.
4. Logistics and Infrastructure Improvements: To address ongoing transportation challenges, coal-exporting countries are investing in port infrastructure and modernizing supply chains. Improved logistics could help stabilize coal prices by ensuring more reliable and efficient transport.

Conclusion

The 2021-22 energy crisis global exposed the vulnerabilities in the global energy system and underscored the critical role of coal in energy security during times of crisis. While coal prices have declined from their peak, they remain higher than pre-crisis levels, reflecting sustained demand in key markets. This experience has accelerated the global push toward renewable energy and reinforced the need for energy resilience.

As coal use decreases in favor of cleaner energy sources, countries will need to balance immediate energy security needs with long-term environmental goals. Building a robust, diversified energy infrastructure is essential for ensuring that future crises do not compromise economic stability or sustainability objectives.

References

1. Coal Price in Pakistan – Coal-price.com (2024). Retrieved from Coal Price Data​
   Coal Price
   
2. Global Coal Prices and Market Trends – Markets Insider (2024). Available at Markets Insider​
   markets.businessinsider.com
   
3. World Bank Blog on Coal Market Developments – Coal Market Trends and Forecast (2023). Available at World Bank Data Blog​
   World Bank Blogs
   
4. Global Price Tracking for Commodities – Trading Economics (2024). Available at Trading Economics​
   Trading Economics