Japan to temporarily lift coal power plant curbs over Hormuz crisis
Friday, March 27 2026 - 09:04 AM WIB
The Japanese government will temporarily lift restrictions on the operation of coal-fired power plants to lower the risk of an energy shortage as the war in the Middle East chokes off supplies of oil and gas from the Strait of Hormuz, Nikkei reported, citing sources familiar with the matter.
The government will allow full operation of older, less efficient coal-fired power plants, which had previously been operating at limited capacity to reduce CO2 emissions, for one year starting in April.
The Ministry of Economy, Trade and Industry is set to present the proposal to its advisory council on Friday, and Prime Minister Sanae Takaichi will announce the decision as a measure to stabilize energy supplies, following the release of national oil reserves that began on Thursday.
The government aims to increase coal use in power generation. Coal, unlike oil and liquefied natural gas, does not come from the Middle East. Japan's coal supplies come from countries such as Australia (74.8%), Indonesia (12.8%), and Canada (4.1%), making them less susceptible price fluctuations stemming from the Iran war.
Japan gets around 30% each of its total power generation from LNG and coal, with oil making up just under 10%. Thus, thermal power plants account for 70% of the total. Ninety percent of its crude oil and 10% of its LNG is imported from the Middle East.
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Historically, most of the crude oil imported into Japan passes through the Strait of Hormuz, which has been effectively blocked following the U.S. and Israeli attack on Iran in late February. Although most of its LNG is secured through long-term contracts from sources outside the region, there are still risks involved.
The government stated in an energy strategy published last year that Japan would phase out the use of inefficient coal-fired power plants, introducing a regulation to cap the utilization rate of such facilities at 50% in principle, to encourage their replacement, suspension or decommissioning.
If these plants are allowed to operate at full power, like newer power plants, they could generate enough electricity to offset the use of 530,000 metric tons of LNG annually, equivalent to 13% of the 4 million tons of LNG Japan imports through the Strait of Hormuz.
The use of coal-fired power is spreading across Asia. The Philippines has declared a national energy emergency and moved to expand the operation of coal-fired power plants. Similar moves are also underway in Thailand, South Korea and Bangladesh.
Coal prices are also rising. The weekly spot price for high-grade coal loaded at the Port of Newcastle, Australia, rose to $135 per ton on Monday, up 16% versus before the attack on Iran, reaching its highest price since December 2024.
"With seaborne coal supply already tight, incremental fuel switching is likely to translate directly into price support," said Mark Gresswell, founder and director of Commodity Insights in Australia.
"If the LNG market volatility persists into the Northern Hemisphere cooling season, the combination of constrained coal supply and stronger power-sector demand should establish a firm, and potentially rising, floor under seaborne thermal coal prices," Gresswell said.
Editing by Reiner Simanjuntak