Japan Fires Up Coal as LNG Import Squeeze Reshapes Power Mix
Japan's gas-fired generation fell to a two-year low in April as utilities pivot to coal, pressing JKM lower after Hormuz disruptions pushed spot prices higher.
Japan's gas-fired electricity supply fell to its two-year low in April (2026-04) as utilities burned more coal to compensate for disrupted liquefied natural gas deliveries through the Strait of Hormuz, according to market data cited by Kyodo News. The shift is now tracking in the JKM benchmark, which stood at $16.07 per MMBtu as of Sunday (2026-07-05), retreating from the $17.10 level recorded in mid-May (2026-05-19) when demand anxiety was at its peak.3,6
Japan covers around 98% of its domestic gas demand through LNG imports, with roughly 6% of annual supply — primarily from Qatar and the UAE — transiting the Strait of Hormuz.2 When disruption to that corridor pushed spot prices sharply higher, the economically rational move for utilities was to switch to coal. The regulatory framework had been constraining that option; the government removed it.
In late March (2026-03), Japan's Ministry of Economy, Trade and Industry announced a one-year suspension of the 50% capacity-factor cap on coal plants below 42% efficiency. The suspension runs through March (2027-03), clearing the way for utilities to run inefficient thermal units at higher output through at least one full heating season.4
The South Korean market shows how broadly the pattern has spread. Coal-based power generation in South Korea surged 39.7% year-on-year to 10,733 GWh in April (2026-04), S&P Global Energy analyst Andre Lambine told Kyodo. "The longer this war continues, the more shifts we will see," Lambine said.3
Japan's structural position as an LNG buyer had already been softening before the Iran crisis. Annual LNG imports totalled 66.3 million tonnes in 2025, down 1.5% from 2024, as renewable capacity growth, slower economic output, and the gradual restart of nuclear power compressed overall gas demand.2 That declining consumption base gave utilities the headroom to absorb a spot price spike by increasing coal burn rather than bidding aggressively for alternative cargoes.
The country's energy vulnerability extends beyond gas. Roughly 90% of crude oil imports originate in the Middle East, prompting Tokyo to release approximately 80 million barrels from its strategic petroleum reserve — around 26 days of domestic oil demand — to stabilise liquid fuel supply.2 Gas has no comparable strategic buffer, making the coal switch the immediate pressure-release valve.
Natural gas accounts for around 32% of Japan's power generation mix, followed by coal at 28%, with nuclear at 9% and oil-fired generation at 7%. The power sector absorbs somewhere between 55% and 65% of total gas consumption.2 Those ratios are shifting in real time, with the coal share climbing as METI's cap suspension takes effect.
The signal mix on JKM leans bearish at the margin. ChAI data from mid-May (2026-05-19) showed traders' positions and technical price signals adding around $0.99 per MMBtu of upward pressure, while supply-side inventory data pointed modestly in the opposite direction, producing the neutral-to-soft market sentiment since reflected in the benchmark.5
China's emergence as the world's dominant LNG buyer, a transition that had already displaced Japan at the top of the demand hierarchy before the current disruption, means global cargo balances are less sensitive to reduced Japanese buying than they would have been a decade ago, Wood Mackenzie data indicate.1 For the JKM price trajectory, the more decisive variable remains the duration of the Hormuz disruption and whether Japan's coal consumption — already elevated by the regulatory change — will eat further into gas demand through the coming winter.
Physical Newcastle thermal coal was last at $122.50 per tonne, sustaining economics that favour switching across the region. Tokyo's decision to suspend its inefficient-coal capacity cap through March (2027-03) frames the timeframe: at minimum, the structural shift in Japan's fuel mix runs through the 2026-27 heating season.