Rystad Energy reports that a 35mn t LNG supply shortfall is forcing gas-dependent utilities to operate existing coal plants more. This practice is supported by the removal of regulatory caps in northeast Asia.

The supply reduction has pushed regional gas prices to near three-year highs, reducing demand and creating a 35mn t/y supply gap in 2026, which Asia-Pacific markets cannot easily replace. As a result, about 90TWh of generation is shifting from gas to coal-fired facilities. The market analyst projects that Asia’s coal consumption could rise by nearly 70mn t in 2026 if gas markets remain tight. This increase is driven by higher usage of existing coal plants, not new capacity.

Coal-fired generation is also increasing in northeast and southeast Asia, while gas-based generation declines. Seaborne coal shipments to the region are also rising. Japan’s coal-fired generation reportedly rose by 11% as gas-fired output fell by 13%. In May, South Korean coal imports were 50% higher and Japanese imports 20% higher than the previous year.

‘What we are seeing is not a coal comeback but a reality check for the Asia-Pacific’s energy transition,’ said Tonmit Talukdar, Analyst of Coal Research at Rystad Energy. ‘LNG price volatility has shifted costs without reversing the move towards cleaner energy and thermal coal prices have responded to that tightness with cautious buying, stockpiling and a geopolitical risk premium rather than any structural change.’

‘Coal is stepping in when gas prices spike, supply tightens or mothballed plants are briefly restarted,’ Talukdar added.

Talukdar stated that the current market response is more contained than the response during the 2022 Russia–Ukraine crisis. Disruptions to Russian gas supplies in 2022 caused a sharp increase in global coal demand. At that time, renewable energy capacity additions were limited. Thermal coal inventories across major Asian markets were also lower in 2022.

In 2026, high coal inventories and the availability of alternative energy in China, India and other Asian nations currently prevent a similar market pressure. ‘Until storage, grid flexibility and firm low-carbon capacity scale sufficiently to cover peak demand and periods of low wind or hydro output, coal will continue to serve as the system’s fallback,’ Talukdar said.

Rystad Energy’s base case scenario projects that Newcastle coal will average $125/t in 2026, referring to the 6,000 kcal/kg coal basis – the global benchmark for seaborne thermal coal and the reference price for Australian exports into northeast Asia. The price is projected to decrease to $115/t in 2027, with nuclear restarts in northeast Asia and improvements in LNG supply easing the fuel deficit.

The report shows that Japan leads demand growth among gas power systems in the Asia-Pacific region due to policy adjustments and nuclear restarts. South Korea and Taiwan are also burning more coal because of disruptions to LNG supplies and lower nuclear output. The Philippines, Thailand and Vietnam are increasing coal usage to offset tight gas balances. China remains insulated from these disruptions because gas has low penetration in its power sector, meaning China contributes only marginally to seaborne coal demand.

A downside scenario involving renewed hostilities could increase coal demand by 90mn t in 2026 alone. Under this scenario, cumulative near-term demand would reach approximately 190mn t. However, Rystad reports that no major coal producer has approved new large-scale mining projects or extended mine lifetimes, despite increased demand. This capital allocation decision contrasts with the industry actions that followed the 2022 invasion of Ukraine. Governments describe the current demand increases as emergency responses to system constraints and supply shocks. Future investment decisions by producers like Adaro, BHP, Bumi or Glencore regarding new mines or life extensions will indicate whether these industry expectations are permanent or temporary, concludes the report.