Asian utilities are ramping up coal-fired power generation to contain costs and protect energy supply after the US-Israeli war on Iran brought LNG shipments through the Strait of Hormuz to a near-standstill and sent spot prices to three-year highs.
Asia spot LNG prices have doubled in what industry officials describe as the second major supply shock in four years, with Qatar — the world’s second-largest LNG exporter — halting shipments and Hormuz traffic all but stopped.
Across the region, the response has been swift. Bangladesh is increasing coal power generation and coal-fired power imports. The Philippines is ramping up coal-fired output while sharply cutting LNG-fired generation. Vietnam is negotiating new coal supply contracts, and Thailand is boosting output from its largest coal plant to preserve LNG stocks. South Korea plans to lift ceilings on coal-fired output and raise nuclear generation, while Japan’s top utility JERA said it would keep coal plants running at high utilisation rates.
Pakistan’s Power Minister Awais Leghari said domestic coal plants would be able to produce more during off-peak hours as LNG generation falls, adding that solar additions had helped the country avoid a repeat of the blackouts that followed Russia’s 2022 invasion of Ukraine.
The supply shock is expected to cause lasting damage to LNG demand across Asia. Wood Mackenzie analyst Lucas Schmitt said the conflict would “significantly reduce Asian LNG demand growth in 2026,” with the consultancy cutting its forecast for regional LNG imports to around five million metric tons from 12.4 million tons, based on an assumed two-month disruption to Middle East supply. Asian buyers will also face higher costs from June, as most LNG contracts are linked to oil prices on a three-month lag.
The blow falls hardest on South Asia’s poorest economies. Aziz Khan, chairman of Bangladesh’s Summit Group, which operates an LNG regasification unit, warned that surging power costs were unsustainable. “You’re breaking the backbone of the economies of poorer countries,” he told Reuters.
The crisis is also expected to accelerate a shift away from fossil fuel imports. Natural gas has already accounted for a declining share of Asia’s power generation for nearly a decade as renewables expand, despite major energy companies having bet billions of dollars on regional LNG demand growth. Analysts say the latest shock reinforces that trend.
“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, LNG research lead at energy think tank IEEFA.
(Reuters)
