Asia turns to coal as LNG crisis deepens amid Middle East conflict

Asian utilities are ramping up coal-fired power generation to curb costs and secure energy supply, as the US–Israeli conflict involving Iran disrupts liquefied natural gas (LNG) shipments and drives prices sharply higher, Reuters reported.

Spot LNG prices in Asia have surged to three-year highs in what marks the second major supply shock in four years. Shipments through the Strait of Hormuz have nearly halted, while Qatar—the world’s second-largest LNG exporter—has suspended exports.

In South Asia, Bangladesh has increased coal-fired power generation and coal-based electricity imports in March, according to daily government data. Pakistan, meanwhile, is seeking to boost domestic power generation after a surge in solar capacity helped it avoid a repeat of the outages triggered by LNG supply volatility following Russia’s 2022 invasion of Ukraine, Energy Minister Awais Leghari said.

“With reduced LNG generation, plants running on locally mined coal will be able to produce more during off-peak hours,” Leghari told Reuters.

In Southeast Asia, the Philippines is increasing coal-fired output while cutting LNG-based generation. Vietnam’s state utility Vietnam Electricity said it is negotiating additional coal supplies, while Thailand is boosting output from its largest coal plant to conserve LNG.

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Elsewhere, South Korea plans to lift caps on coal-fired generation and expand nuclear output. In Japan, leading utility JERA said it will maintain high utilization rates at its coal-fired plants.

Natural gas has steadily lost share in Asia’s power mix over the past decade amid rapid renewable energy growth, according to data from Ember. However, the latest supply disruptions are expected to accelerate LNG demand destruction across the region, with prices likely to remain volatile even after the conflict subsides.

High LNG costs following the Ukraine war, combined with limited city gas infrastructure, have already led to delays or cancellations of LNG import projects in South Asia. Around $107 billion worth of planned investments could be at risk, according to a recent report by Global Energy Monitor.

Aziz Khan, chairman of Summit Group, said rising costs are difficult to pass on to consumers. “You’re breaking the backbone of the economies of poorer countries,” he told Reuters.

Because most LNG contracts are indexed to oil prices with a three-month lag, Asian buyers are expected to face higher costs starting in June, consultancy Wood Mackenzie said. Analyst Lucas Schmitt noted that the conflict could significantly curb LNG demand growth in 2026, with the firm cutting its forecast for Asian LNG imports to around 5 million metric tons from 12.4 million tons, assuming a two-month supply disruption.

Coal markets have also tightened, though less dramatically. Asia’s benchmark thermal coal price has risen 13.2 percent this month, while European coal futures are up 14.2 percent. Analysts at Kpler expect EU thermal coal imports to increase 36 percent to 30 million tons this year due to low gas inventories.

However, analysts say the coal rally remains limited, as major Asian buyers—including China, India, Japan and South Korea—continue to draw on ample stockpiles and long-term supply contracts.

Rising fuel import costs are also strengthening the case for renewable energy. “Recent shocks once again refute the case for relying on imported fossil fuels in energy sector development plans, potentially creating more opportunities for renewables,” said Sam Reynolds of Institute for Energy Economics and Financial Analysis.

Editing by Reiner Simanjuntak