Asia Turns to Coal as LNG Costs Surge Disrupt Power

Key Moments

Asia Reverses Course Toward Coal

Coal has re-emerged as a critical fuel in Asia’s power generation mix as regional governments react to an acute shortage of liquefied natural gas (LNG) triggered by the war in the Middle East.

Although coal use had never disappeared from most Asian economies, where it remains a major source of electricity, the effective shutdown of the Strait of Hormuz and the resulting spike in LNG costs have pushed many countries to loosen previous constraints on coal-fired power.

Developed markets such as Japan and South Korea are ramping up coal-fired output, while emerging economies including China, India, Bangladesh, and much of Southeast Asia are leaning even more heavily on coal as natural gas becomes both scarce and prohibitively expensive.

Energy Security Takes Priority

Asian nations are increasingly prioritizing reliability of supply over headline emissions targets. Anthony Knutson, global head of coal at Wood Mackenzie, told the Financial Times that countries in the region “are opening the tap on coal generation to help offset rising gas prices and supply risk.”

Coal cannot fully compensate for the loss of LNG, but it is providing a crucial buffer as the region navigates what is described as the largest disruption in energy supply markets to date.

China, India, South Korea, Japan, and countries across South and Southeast Asia are drawing on coal buffers they have built up in recent years. Their strategy of emphasizing diversification and energy security over rapid reductions in emissions is proving advantageous as Asia’s spot LNG prices have jumped by 70% to levels that many Asia Pacific buyers cannot afford.

Market Impact: Coal vs. LNG

Analysts at Wood Mackenzie noted during the first week of what has now become a five-week conflict that the removal of Qatari LNG from the market could be partially offset in the near term by higher coal burn. They expect coal to take market share from natural gas and LNG in the power sectors of Japan, South Korea, China, India, and Southeast Asia.

While other options, such as accelerating renewable energy deployment and enhancing domestic gas production where feasible, could help reduce dependence on Middle Eastern supply, Wood Mackenzie views these as longer-term solutions rather than immediate fixes.

For now, coal remains the fastest-available substitute. Although coal prices have climbed by 17% since the war began, that move is modest compared with the 70% surge in Asia’s spot LNG prices.