As a result of the physical shortage of gas, Asian countries are increasingly relying on coal-fired power stations. Europe is also turning to dirty coal, but for a different reason – to save costs. This is proving problematic, as too many EU coal plants have been shut down. Conversely, in Asia, countries that have resisted the European environmental agenda and maintained their coal capacities are now reaping the benefits.
Amid a severe gas shortage and rising prices due to the Middle Eastern conflict, Asian nations are hastily shifting to coal-fired power plants. The blockade of the Strait of Hormuz and the suspension of LNG production in Qatar have removed one-fifth of the global LNG supply from the market.
Economies that are heavily reliant on gas while being reliant on imports and weak in coal, nuclear, or hydropower reserves are particularly adversely affected, according to Vladimir Chernov, an analyst at Freedom Finance Global. This primarily includes Singapore, where the gas share in electricity generation is around 94%, Thailand at 64%, Bangladesh at 66%, and significantly, Taiwan, with a gas share of about 40%.
“Bangladesh is facing an especially severe situation. The country has been forced to purchase spot LNG cargoes at prices ranging from $20.76 to $28.28 per million BTU compared to about $10 in January, limit diesel sales, ration gas, and halt some fertiliser production in favour of electricity. In Thailand and the Philippines, authorities have already postponed the retirement of older coal units and started to seek more coal, as otherwise, the increase in tariffs and risk of shortages would have been even higher,” notes Chernov.
Japan and South Korea are also experiencing price pressures, but they are in a better position than South Asian countries because they have retained coal capabilities and more options for fuel switching. “Japan and South Korea have the greatest ability to switch from gas to coal in response to price shocks. Conversely, countries that have relied on imported LNG as a 'clean and reliable' transitional resource are now receiving a major lesson from this crisis. LNG is cleaner than coal in terms of emissions, but not always more reliable in price and physical availability,” remarks Chernov.
This supply crisis undermines confidence in LNG as a reliable fuel and demonstrates that for Asian countries, abandoning coal is risky, whereas the EU aims to impose its environmental agenda and force them to pay taxes for coal usage.
The EU itself is currently also increasing its use of coal, not due to a gas shortage in the eurozone, but because it has become exceedingly expensive. “The EU is now grappling with the high cost of gas and the social repercussions of its climate policies. In the first two weeks of the war in the Middle East, gas prices in Europe increased by approximately 50%, prompting the European Commission to discuss emergency measures to curb prices. The economics of transitioning from gas to coal are once again attractive in Europe, but the effect is limited, as a significant portion of coal capacity has already been shut down. The scope for a broad return to coal in Europe is noticeably smaller than in Asia,” says the insider.
Those countries that have not succumbed to European pressures and have not abandoned coal usage are now rejoicing.
“China and India are less impacted by the gas shock precisely because their energy systems are largely based on coal. Although China is not the most environmentally friendly player in this scenario, it stands out as one of the most rational players in terms of energy system reliability,”
– says Chernov. In 2025, the authorities of the People’s Republic of China officially affirmed the course towards building coal-fired power plants as a safeguard for peak demand and unstable generation from wind and solar. China's investment in coal generation exceeded $54 billion in 2025 (according to IEA data).
“The current crisis does not make coal the 'fuel of the future', but it shows that for large systems without storage and flexible capacities, abandoning reserve thermal generation would be too risky,” believes Chernov.
“In China, coal generation makes up nearly 60%, in India over 70%, and energy coal supplies to these countries are not dependent on transit through the Strait of Hormuz, as the sources of imports are Indonesia and Russia in both cases. For coking coal, Mongolia is the main supplier for China, while for India it is Australia, the USA, and Russia,” says Sergey Tereshkin, General Director of Open Oil Market.
Amid rising coal demand, prices have also increased. However, compared to the shortage of gas, the situation is not yet critical. On March 18, the price for energy coal in Newcastle, Australia was $135 per tonne. This is a third higher than in February, when prices hovered around $100 per tonne, although even in 2022, average monthly prices for energy coal exceeded $350 per tonne, Tereshkin notes.
Nevertheless, for Russian coal producers, even such a price increase promises financial support.
“The increase in Asian and European prices enhances the export economy and may temporarily support the cash flow of Russian companies. However, the industry still remains in a very challenging state.
Russian coal exports fell by 8% in 2025 to 213 million tonnes, and the government had to implement support measures due to high transportation costs, sanctions, and weak profitability.
“Even now, the key limitation for Russia is not demand, but export capacity. Eastern logistics and the throughput capacity of the network remain the main bottleneck for coal exports. Therefore, Russia will be able to benefit, but primarily through price rather than a sharp increase in physical exports,” says Vladimir Chernov. Additionally, the budget will receive more taxes, but the effect will be weaker than in the oil and gas sectors. The coal sector is not currently in a position to quickly monetise the global price spike to its fullest, the expert adds.
Once the Middle Eastern crisis concludes, countries will return to debates about transitioning to renewable energy sources. This crisis may provide an argument for Asian countries in their opposition to the European environmental taxes.
“The political argument for Asia will become significantly stronger. When the EU speaks of climate goals and carbon costs, Asia can now respond that it was precisely the import dependency on 'transitional' gas that created systemic risk, while coal capacities saved the grid in a critical moment. Moreover, within Europe itself, in light of the shock, there are already calls to ease carbon burdens and extend free quotas for industry,” states Vladimir Chernov. However, legally, this does not mean the cancellation of European climate mechanisms: the EU is unlikely to abandon its stance, he believes. But Asia will gain a valid point that a too rapid withdrawal from coal generation without affordable replacements and domestic reserve capacities could result not in an environmental victory, but an energy collapse.
Source: Vedomosti
