Asian Utilities Switch to Coal as Iran Conflict Drives LNG Bills Past Developing Nations' Limits
Wood Mackenzie has cut its Asian LNG import forecast by more than half, as South Asian utilities absorb surging costs through coal-fired generation.
JKM spot LNG was $27.76/MMBtu on Wednesday, September 16, with market sentiment reading neutral even as the war involving Iran continues to disrupt supply routes across the Middle East. That level sits more than $10/MMBtu above the 17-month low of $17.10/MMBtu the benchmark printed on May 19 (2026-05-19), when mild weather left Asian and European storage better supplied than most forecasters had expected. For price-sensitive buyers across South and Southeast Asia, spot LNG above $27 is beyond what import budgets can absorb.5,4
The response is a shift to coal. Industry officials told reporters that Asian utilities are turning to coal-fired power to manage rising energy costs and maintain supply security, with the conflict having choked key LNG shipment routes. Bangladesh increased coal-fired generation and boosted imports of coal-based electricity in May 2026 (2026-05), according to government data — a concrete illustration of how the price environment is reshaping generation choices in budget-constrained markets.1
Wood Mackenzie has put numbers on the demand destruction. Analyst Lucas Schmitt said the conflict "will significantly reduce Asian LNG demand growth in 2026," with the firm cutting its Asian LNG import forecast to about five million metric tons from a prior estimate of 12.4 million tons, assuming a two-month disruption to Middle East supply routes. That is a reduction of roughly 60%.1
JKM's September level has not replicated the extremes seen earlier in 2026. The benchmark hit $56.326/MMBtu on May 13 (2026-05-13) during the peak of the gas crisis, a record high since S&P Global Platts launched the JKM in 2009, before collapsing to the 17-month low the following week as immediate supply fear faded and inventories proved adequate. September's price reflects an unresolved Middle East supply disruption without the panic of that spike.3,5,4
But the muted spot-price response to ongoing disruption has a structural explanation. Long-term contracts dominate North Asian buying by Japan and South Korea, insulating those buyers from spot JKM volatility. The developing-nation importers most exposed to spot pricing are responding by cutting demand rather than chasing cargoes, which removes the buying pressure that would otherwise lift JKM further. Some physical cargo re-routing has also softened the immediate supply squeeze.1,5
The infrastructure implications run further than 2026 import volumes. Global Energy Monitor estimates around $107 billion in planned LNG infrastructure investments across the region could be at risk if demand signals weaken materially. Utilities choosing coal over spot LNG now may be cementing generation choices in long-lived assets, reducing Asia's effective LNG absorption capacity well beyond this cycle.1
JKM's trajectory through 2026 illustrates both extremes. Quantum Commodity Intelligence reported the benchmark slumped to a 17-month low during the week of May 18 (2026-05-18), when both Asia and Europe emerged from winter with storage largely intact, confounding forecasts of extreme gas shortfalls. The surge to $56 and subsequent collapse within days shows how quickly sentiment can shift when a supply shock appears and is then partially absorbed. September 16's neutral reading sits between those two outcomes.4,5
European storage provides context on competing demand. AGSI+ data show underground storage at 77.3% as of June 30 (2026-06-30), up from 75.5% a week earlier. A well-stocked Europe draws fewer Atlantic LNG cargoes toward the continent, limiting upward pressure on JKM from intercontinental cargo competition.2
Morgan Stanley cut its ICE Endex TTF forecast twice during the week of May 18 (2026-05-18), citing January demand running 22% below seasonal norms while LNG imports stayed elevated — a sign that supply adequacy, not geopolitical scarcity, was the dominant pricing force over the winter months.4
Japan's METI data show LNG inventories for power generation at 2.23 million tonnes as of June 25 (2026-06-25), down 0.14 million tonnes from the previous week but up 0.09 million tonnes versus a year earlier. The wealthier buyers are drawing down stock at a manageable pace. What moves JKM next is how long the Middle East disruption persists against Wood Mackenzie's two-month assumption — if it extends, a coal switch that now looks opportunistic could harden into something more durable across South Asian power infrastructure.2,1