The ongoing conflict in the Middle East, temporary ceasefire notwithstanding, is forcing countries across the Asian continent to revert back to coal use as disruptions to long-standing LNG supplies expose the region’s vulnerability to external energy shocks.

From Japan to Indonesia to Vietnam, governments are increasingly turning back to coal-fired power generation to help offset a widening shortfall in LNG imports. The shift is not unexpected, however, as supply chains linked to one of the world’s most important LNG exporters, Qatar, have been drastically reduced, Bloomberg reports.

At the centre of the turn back to coal is the damage sustained by the Ras Laffan industrial complex - the world’s largest LNG export facility. The site was heavily damaged on March 18 as part of a series of Iranian attacks on energy infrastructure across the Persian Gulf. This, coupled to the effective closure of the Strait of Hormuz, means that the movement of LNG cargoes has become close to impossible which has only compounded the shock to global gas markets.

With the resulting surge in LNG prices therefore placing the fuel out of reach for many price-sensitive buyers in developing countries, across much of Asia this has meant a return to coal.

Coal already accounts for a substantial share of Asia’s power mix, typically exceeding 40% to 50% across many leading economies in the region, and thus has long been seen as more cost-competitive than imported gas. 

The clearest example in recent days is in Bangladesh, where authorities have reacted to the war in the Middle East and shortages by scaling back gas supplies to power plants and fertiliser producers. As a result, coal-fired generation is being ramped up to fill the gap, thereby reflecting both the urgency of maintaining electricity supply and the immediate lack of flexibility available to policymakers.

Similar patterns are expected to emerge across South and Southeast Asia in the days and weeks ahead as the political and economic costs of potential widespread blackouts would not sit well with populations moving slowly towards the summer months.

As a result of coal suddenly falling back into favour, coal prices have also risen sharply on the back of the increase in demand. Newcastle futures, the benchmark for the Asia-Pacific region, hit 135.25 per tonne as of early morning March 24 after climbing to their highest levels since the end of 2024 earlier in the month when they fell just shy of 138. Because of this the rally is placing pressure on major exporters in Indonesia and Australia to increase supply, even as they balance domestic energy needs.

With Indonesia the world’s largest coal exporter, Jakarta has responded by allowing miners to boost output even if it reverses an earlier policy that sought to cap production to help support prices.

Elsewhere, political leaders are taking steps to maximise the use of existing coal-fired capacity. South Korea has already lifted caps on coal power generation, while regional utilities in Japan are assessing contingency plans that include a switch from gas to coal if disruptions in LNG supply persist. In the Philippines, officials are reported to be engaged in discussions with neighbouring Indonesia to secure additional coal supplies. Taiwan too is understood to be at least thinking about making the switch back to coal, sources say, even if the ruling government appears keen to paint a picture of no imminent power shortages on the horizon.

In Vietnam meanwhile, once a nation so heavily reliant on coal, the recent shift to LNG is expected to stall, if only temporarily, making the use of its coal-powered infrastructure still in place all the more crucial.

In practical terms, governments across Asia have little room for manoeuvre. As temperatures rise, electricity demand across much of Asia is set to increase sharply as air conditioners are switched on. Only by ensuring stable power supplies will governments keep populations happy.

However, this renewed dependence on coal is likely to have lasting implications. Increased coal consumption will only serve to complicate emissions targets and may delay progress towards decarbonisation across the region. In addition, the ongoing volatility in LNG markets could prompt a reassessment of long-term energy strategies and boost the shift away from fossil fuels altogether.

For now the immediate calculus is clear. Faced with a tightening LNG market, soaring prices and constrained supply routes, Asian economies are turning back to a familiar, if dirty and environmentally costly, solution.