Fossil Fuels’ Price Boom Isn’t the Victory It Might Seem

Fossil Fuels’ Price Boom Isn’t the Victory It Might Seem

Since breaking above $100 a metric ton in May, the price of coal at Australia’s Newcastle port — a benchmark for Asia, which consumes about three-quarters of the world’s soot — has gone almost vertical, hitting a record $173.10 a ton Thursday. The key regional contract for liquefied natural gas, the Japan-Korea Marker, is in similar territory, hitting $18.02 per million British thermal units the same day. That’s not a record, but it’s still the third-highest spike LNG has ever seen, during what’s typically the low season for a commodity that tends to surge amid winter’s heating demands.

If you think of futures prices simply as a vote on the path ahead for the commodity in question, that should worry a world that needs to decarbonize. This view is simplistic, though. Commodity prices don’t rise and fall based on the level of demand itself, but rather as a result of the mismatch between demand and supply. A world in which fossil fuel consumption is on a long-term downtrend can still see handsome prices for fossil fuels in any period when supply falls faster than demand.

The current price spike has multiple sources. One is the diversion of Russian gas from Europe to