Asia’s coal demand to rise by 100 million tons in wake of Middle East conflict / Rystad Energy

The Middle East conflict has dealt a lasting blow to Gulf energy infrastructure, causing billions of dollars in damage and catapulting energy security to the top of the global agenda. Rystad Energy's research shows the fallout is driving a significant near-term surge in Asia-Pacific (APAC) thermal coal demand, with an additional 150 million tonnes (Mt) of cumulative consumption projected through 2030, roughly half of which is expected to land in 2026 alone. The driver is not a policy reversal but a supply gap, with a liquefied natural gas shortfall of 35 Mt estimated this year. This is forcing gas-dependent utilities to run existing coal capacity harder, backed by regulatory cap removals across Northeast Asia.

Qatar's Ras Laffan facility, damaged in the conflict, has triggered force majeure and removed close to 10.2 Mtpa of LNG supply to Asia, with the partial shutdown expected to extend through late summer. This has tightened regional gas markets and pushed the Japan Korea Marker (JKM) near three-year highs, discouraging some demand and leaving an estimated 35 Mtpa supply gap in 2026 that the region cannot easily replace. The shortfall is increasingly being absorbed through higher coal utilization, with roughly 90 terawatt-hours (TWh) shifting directly to coal-fired power generation.

Rystad Energy expects incremental coal consumption in Asia to rise by close to 70 million tonnes in 2026 under a sustained tight gas market scenario, driven not by large-scale new capacity additions but by existing coal-fired fleets running at higher utilization rates. Coal-fired generation across Northeast and Southeast Asia has risen sharply as gas output retreats and global seaborne coal shipments to the region step up materially. Japan’s coal-fired generation grew 11% even as gas output fell 13%, and South Korean and Japanese coal imports are tracking more than 50% and 20% above year-ago levels for May. Across affected economies, the pivot reflects necessity over choice, with coal's supply chain remaining untouched by the conflict.

“What we are seeing is not a coal comeback but a reality check for APAC's energy transition. LNG price volatility has shifted costs without reversing the move toward 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. The response so far remains more contained than in 2022 Russia-Ukraine crisis when disruptions to Russian gas supplies triggered a sharp surge in global coal demand. At the time, renewable capacity additions were limited, and thermal coal inventories across major Asian markets were significantly lower. In contrast, strong coal inventories and record alternate energy availability in India, China and major Asian countries have prevented the market from becoming as structurally strained this time. 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,” says Tonmit Talukdar, Analyst, Coal Research at Rystad Energy.

Newcastle 6000 kcal coal, the global benchmark for seaborne thermal coal, reflects marginal pricing conditions in the region where shifts in gas availability, nuclear output and import dependence are most visible, serving as the reference price for Australian exports into Northeast Asia and remaining highly sensitive to supply-demand imbalances that shape marginal power generation economics. Under Rystad Energy's base case, Newcastle coal averages around $125 per tonne in 2026 before easing to $115 in 2027, as nuclear restarts in Northeast Asia and gradually improving LNG supply conditions ease regional fuel tightness.

Against this pricing backdrop, incremental coal demand growth is concentrated in APAC gas-exposed power systems, with Japan leading the increase as policy adjustments and nuclear restarts reshape its generation mix, and South Korea and Taiwan seeing higher coal burn from LNG supply disruptions and reduced nuclear output. In Southeast Asia, Vietnam, Thailand and the Philippines add incremental demand as coal fleets run harder to offset tighter gas balances, while China remains comparatively insulated by its low gas penetration in the power sector, contributing only marginal seaborne coal demand. In a downside scenario where hostilities resume, Rystad Energy estimates coal demand could rise by around 90 million tonnes in 2026 alone, with cumulative near-term demand reaching approximately 190 million tonnes, materially above the base case.

Despite the scale of the near-term response, no major producer has moved to sanction large scale new coal mining projects or materially extend mine lives, a marked contrast to the period following Russia's invasion of Ukraine in 2022. Governments have largely characterized recent demand increases as emergency-driven, reflecting system constraints and limited flexibility in managing supply shocks rather than a structural policy shift. The key signal to monitor is capital allocation on the supply side, where any meaningful move by producers such as Glencore, BHP, Adaro or Bumi toward new mine commissioning or significant life extensions would indicate a more durable shift in industry expectations. For now, such investment responses remain limited, suggesting producers still view current conditions as cyclical rather than structural.