Japan’s recent power-generation data point to a notable adjustment in the country’s energy mix, with utilities reducing LNGbased generation and increasing coal burn. In June, gas-fired output fell by 16% y-o-y, while coal-fired generation by the largest Japanese utilities rose by almost 5%. The shift was also reflected in trade flows. According to LSEG data, Japan’s LNG imports declined by approx. 9.5% y-o-y in June, while thermal coal imports rose sharply by around 27%, with Australia and Indonesia remaining key suppliers.
The decline in Japanese LNG imports, alongside the increase in thermal coal purchases, appears to reflect short-term fuel economics rather than a structural change in energy policy. Utilities have responded to relatively high spot LNG prices by increasing coal use where available, using coal as a practical balancing fuel when gas becomes less competitive. At the same time, Asian LNG demand is also supported by seasonality, as the region is in the summer cooling season. Asian spot LNG prices remained elevated in June, averaging above $17/MMBtu, compared with around $13.1/MMBtu in Europe. This premium encouraged more flexible US LNG cargoes to move towards Asia, with the region taking over half of US LNG exports for the first time in two years, while shipments to Europe declined by roughly a quarter y-o-y in June.
Beyond seasonal demand, however, the strength in regional prices has not fully deterred buying from more energy-constrained markets. Pakistan’s second spot purchase for prompt delivery highlights that some Asian buyers remain constrained by nearterm energy needs, even at elevated LNG prices. With normal Qatari flows disrupted, Pakistan has faced mounting pressure on its energy system, leaving it prepared to pay a premium for replacement cargoes.
These fuel-switching and cargo-reshuffling dynamics carry different implications for LNG carriers and bulk carriers. For LNG shipping, the effect is mixed. High Asian LNG prices can attract more flexible cargoes into the region, supporting ton-mile demand as US shipments move onto longer-haul voyages to Asia rather than shorter routes to Europe. At the same time, those same prices can discourage price-sensitive importers such as Japan from gas use, weighing on LNG import volumes. This matters because Japan holds a central role in Asian LNG demand, ranking as the region’s second-largest LNG importer after China in 2025 and accounting for around 24% of Asian LNG imports. The key element thus is pricing: if elevated LNG prices persist, buyers may limit spot purchases, draw more heavily on inventories, or lean further on other energy sources.
For dry bulk carriers, the effect is more directly supportive. Higher coal-fired generation in Japan increases demand for seaborne thermal coal, mainly from nearby suppliers such as Australia and Indonesia. This provides additional employment for vessels in Pacific coal trades and reinforces coal’s role as a flexible balancing fuel, even as longer-term policy remains focused on loweremission energy sources.
Japan’s latest import pattern should be viewed within the broader energy-shipping balance. Elevated LNG prices can be positive for ton-miles when flexible cargoes are redirected over longer distances, but they also risk curbing the end-user demand needed to sustain those flows. The key question is whether current price spreads can continue to support shipping demand without further weakening LNG consumption.
Finally, a critical factor for this dynamic will be the potential normalization of Middle Eastern LNG supply. If Qatari output returns to more typical levels and flows into Asia improve, particularly against a steadier Strait of Hormuz backdrop, spot LNG prices could ease and gas-fired generation may regain some competitiveness. Until this is reflected in both pricing and cargo movements, Japan’s energy sector is likely to keep fuel flexibility at the core of its strategy.
Data Source: Intermodal