Iran War Disrupts LNG, Japan and South Korea Back to Coal

Japan and South Korea are increasing the use of coal for power generation after the Iran war disrupted LNG supplies and sent prices soaring.

Quoted from Kyodo News, Wednesday, May 13, market data shows that Japan's gas-based electricity supply in April fell to its lowest level in two years. In South Korea, gas-based electricity supply fell to its lowest level in six months.

LNG or liquefied natural gas is gas that is cooled to become liquid so that it is easier to be sent by ship. Japan and South Korea have been the two largest buyers of LNG in Asia.

The change in energy patterns came after Iran's retaliatory attacks on the US-Israeli attack crippled 17 percent of Qatar's LNG export capacity, the world's second largest LNG supplier.

"The longer this war continues, the more shifts we will see," said Andre Lambine, an electricity analyst at S&P Global Energy, quoted by Kyodo.

In Japan, coal-fired electricity supply rose 11.1 percent in April. At the same time, gas-based electricity fell 12.9 percent to 16,447 gigawatt-hours or GWh.

GWh is a unit to measure the production or consumption of electricity in large quantities.

ICIS senior gas analyst Fei Xu said Japan's coal power hike replaced about four LNG cargoes in April. The move helped keep Japan's LNG supplies close to the five-year average.

In South Korea, coal-based electricity jumped 39.7 percent year-on-year to 10,733 GWh in April. This is the sharpest increase since August 2019. On the other hand, gas-based electricity fell 6.4 percent.

Nuclear power supply also fell. In Japan, it fell 2.7 percent year-on-year in April. In South Korea, it fell 14.6 percent. The decline continued in the first 10 days of May.

This condition makes coal again a buffer. In May, coal power supply increased by 18.3 percent in Japan and 14.7 percent in South Korea. In the same period, gas-based electricity fell by 23.4 percent and 12.2 percent respectively.

Heat waves in Southeast Asia have also increased electricity demand. In Vietnam, coal-fired electricity production rose 12.3 percent to a record 17,864 GWh last month.

DBX Commodities estimates Asian thermal coal imports in May, excluding China and India, rose 9.4 percent to 31 million metric tons. Kpler data also showed Vietnam's electric coal imports jumped to a record 5.4 million tons in April.

Asian spot LNG prices have risen 62 percent since the start of the war. The increase is much higher than the benchmark for Newcastle coal prices, which rose 13 percent.

"The value of coal is now increasingly determined by the security of supply, not just the economy," DBX Commodities CEO Alexandre Claude was quoted as saying by Kyodo.