Japan coal shift falls short of replacing Hormuz LNG supply

Utilities limit coal buying amidst uncertainty over the disruption duration.

Japan can’t import enough coal to replace liquefied natural gas (LNG) lost from the Strait of Hormuz, leaving utilities exposed despite a policy shift to raise coal use after supply disruption tightened global markets.

The International Energy Agency said the closure of the strait due to the US-Israel war on Iran has removed nearly 20% of global LNG supply, with Japan among the most exposed importers due to its reliance on shipments through the route.

“Operators will be fairly hesitant to engage in a whole lot of coal procurement,” Walter James, an energy finance specialist for Japan at the Institute for Energy Economics and Financial Analysis, told Asian Power via Zoom.

He noted that whilst Japan eased limits on coal plant use to deal with the LNG shortfall, that policy will be reinstated next fiscal year.

The Ministry of Economy, Trade, and Industry suspended a 50% cap on plants operating below 42% thermal efficiency, covering about 9 gigawatts of capacity.

The policy offers limited relief. Government estimates show potential LNG savings of about 500,000 tonnes a year, just over 10% of the roughly 4 million tonnes Japan imports through the strait annually.

Zero Carbon Analytics assigned Japan the highest disruption score among major importers at 6.4, ahead of South Korea at 5.3 and India at 4.9, reflecting exposure to supply risk.

Coal supply is not the main constraint. Indonesia has signalled it could raise output if prices hold, whilst markets remain well supplied, Sholpan Gabbassova, a senior research analyst for thermal coal markets at energy-focused research and analytics company Wood Mackenzie Ltd., told Asian Power.

“Assuming the strait reopens in early May 2026, there is no sustained price catalyst and no need for above-market contract premiums,” he said via Zoom.

Utilities are anchoring purchases to Australian Newcastle coal, a benchmark for Japanese contracts, limiting appetite for aggressive buying during a short disruption window, James said.

Regional competition may increase as Japan turns to spot markets. Rising demand from Japanese utilities could compete with buyers in South Korea, Taiwan, and India for available cargoes.

Japan could offset gas losses by raising coal use modestly without restarting idled plants, Xiaonan Feng, principal analyst for Asia-Pacific power and renewable research at Wood Mackenzie, said in an email reply to questions.

Duration uncertainty remains the key constraint, with utilities avoiding long-term commitments until clarity emerges on the Strait of Hormuz’s reopening.