Asia pivots to coal as Middle East conflict chokes LNG supply
The key Asian benchmark for thermal coal rises 13.2% in March
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[SINGAPORE/KARACHI] Asian utilities are boosting coal-fired power generation to cut costs and safeguard energy supply, industry officials said.
This comes as the US-Israeli war on Iran chokes liquefied natural gas (LNG) shipments, and soaring prices threaten to suppress LNG demand.
Asian spot LNG prices have doubled to three-year highs in the second major supply shock in four years, as shipping through the Strait of Hormuz has all but stopped, and No 2 global exporter Qatar has halted shipments.
In South Asia, Bangladesh is increasing coal power generation and coal-fired power imports in March, daily government data showed.
Power Minister Awais Leghari said that Pakistan aimed to further boost power generated from domestic sources, after solar additions helped it to avoid a repeat of the LNG supply volatility behind widespread outages, following Russia’s 2022 Ukraine invasion.
He said: “With a reduction in LNG generation, plants running on locally-mined coal will be able to produce more during off-peak hours.”
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In South-east Asia, the Philippines is ramping up coal-fired power and slashing LNG-fired output.
Vietnam’s national power company EVN told Reuters in the week of Mar 9 that it was negotiating coal supply, and Thailand is boosting generation from its largest coal plant to preserve LNG.
South Korea plans to remove ceilings on coal-fired output and increase nuclear generation, and Japan’s top utility JERA told Reuters in the week of Mar 9 that it would keep coal-fired power generation at high utilisation rates.
Declining share of natural gas in Asian power generation
Natural gas has accounted for a declining share of Asia’s power generation for nearly a decade with the rising use of renewables, Ember data showed. This is despite the global energy majors betting billions of dollars on regional LNG demand growth.
War-driven supply disruptions are expected to destroy demand for LNG across Asia, analysts and industry officials said, with prices likely to remain elevated and volatile even after the crisis.
High LNG costs after Moscow’s invasion of Ukraine and shortages of city gas pipeline networks have led to widespread cancellations or delays of proposed LNG import capacity in South Asia, where US$107 billion in infrastructure investments could be at risk, Global Energy Monitor said in a report on Mar 12.
Aziz Khan, chairman of Bangladesh’s Summit Group, which owns an LNG regasification unit, said that it was difficult to pass along higher power costs.
“You’re breaking the backbone of the economies of poorer countries,” he said.
Since most LNG contracts are linked to oil prices on a three-month lag, Asian buyers will pay more from June, consultancy Wood Mackenzie said.
“The conflict will significantly reduce Asian LNG demand growth in 2026,” said Lucas Schmitt, an analyst at Wood Mackenzie.
It cut its annual forecast for Asian LNG imports to about five million tonnes from 12.4 million tonnes, assuming there will be a two-month disruption to the Middle East supply.
Muted spot coal imports, renewables adoption
The key Asian benchmark for thermal coal has risen 13.2 per cent in March. European coal futures are 14.2 per cent higher, and Kpler analysts expect European Union thermal coal imports to rise 36 per cent to 30 million tonnes in 2026 on low gas inventories.
Still, the rally is dwarfed by the acceleration in global LNG prices and will be limited by imports remaining muted for now.
The utilities in major Asian buyers such as China, India, Japan and South Korea draw on ample coal stockpiles and assured supply through their long-term contracts, said analysts.
Rising fuel import costs bolster the argument for renewables, they added.
Sam Reynolds, LNG research lead at energy think tank IEEFA, said: “Recent shocks once again refute the case for relying on imported fossil fuels in energy-sector development plans, potentially creating more opportunities for renewables.” REUTERS
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