Austin WrightNewcastle coal futures have climbed from roughly $115 a tonne at the end of February to about $135 a tonne now, and the reason traces straight back to Japan, a country that imports nearly all the fuel it burns and is scrambling to keep its power grid stable after the closure of the Strait of Hormuz.
In Brief
- Japan has released about 80 million barrels from its strategic petroleum reserves, roughly 26 days of domestic oil demand.
- LNG benchmark prices (JKM) have jumped to near $20 per MMBtu from about $10.5 before the conflict began.
- Australia supplies roughly two thirds of Japan's coal imports and remains its top LNG source as well.
- TEPCO is targeting April 16 for a full restart of the Kashiwazaki Kariwa nuclear plant, the world's largest.
- A new US Japan coal supply deal covers only about 1 million tonnes, a fraction of Japan's 150 million tonne annual imports.
Why Oil Reserves Buy Japan Time, But Not a Solution
About 90% of Japan's crude arrives from the Middle East, which made the Hormuz shutdown an immediate threat to the country's fuel supply. Tokyo answered by releasing close to 80 million barrels from its strategic reserves, enough to cover roughly 26 days of consumption. Because Japan refines nearly all its own gasoline and about 95% of its diesel domestically, that reserve release should hold the retail fuel market steady in the near term.
The harder problem sits downstream, in electricity and heat generation, where imported fuels still do most of the work. Broader commodity markets have felt the same jolt: crude oil, tracked through the USO fund, along with equity benchmarks like the SPY and QQQ, have swung on every headline out of the Gulf, while gold and silver, followed through GLD and SLV, have drawn safety seeking buyers as the conflict has dragged on.
Gas Supplies Hold Up, But Prices Have Spiked
Japan leans on imported LNG for about 98% of its natural gas needs, even though overall gas demand has been drifting lower for years amid soft economic growth, more renewables and the slow return of nuclear plants. Last year the country brought in 66.3 million tonnes of LNG, down 1.5% from the prior year, keeping it the world's second largest LNG buyer behind China.
Only about 6% of that supply, from Qatar and the UAE, actually passes through Hormuz. The bulk comes from Australia (26 million tonnes), Malaysia (10 million tonnes), Russia (5.8 million tonnes, protected by Japan's sanctions carve out for the Sakhalin II project, in which Mitsui and Mitsubishi hold a 22.5% stake) and the United States (4.5 million tonnes). That spread of suppliers means the physical loss of Gulf cargoes is unlikely to knock Japan's gas balance off course.
Prices tell a different story. The JKM Asian LNG benchmark has jumped to around $20 per MMBtu from roughly $10.5 before the war escalated. Australia, already Japan's biggest LNG supplier, is now dealing with its own refined fuel shortages, and the two governments are discussing a swap arrangement in which Japan would send gasoline and diesel to Australia in exchange for steady LNG flows. Tokyo has also urged Canberra to hold off on any windfall tax on LNG exporters, an idea the Albanese government had floated as commodity prices ran up. Given how tight Australia's own fuel market has become, shelving that tax for now looks like the more likely path.
Gas remains Japan's single largest source of electricity, supplying about 32% of generation, ahead of coal at 28%, nuclear at 9% and oil at 7%, though gas's share has been slipping as nuclear comes back online. Power generation eats up 55 to 65% of total gas use, while industry, mainly petrochemicals and refining, accounts for roughly a quarter. That industrial slice is now vulnerable: gas feeds hydrogen production used in refining, and with naphtha supplies tightening (about two thirds of Japan's naphtha imports once moved through Hormuz), suppliers expect industrial gas demand to soften, which could partly cushion the drop in Middle Eastern LNG.
Coal Becomes the Practical Fallback, With Australia the Clear Winner
With gas prices elevated, coal has become the cheaper option for keeping the lights on, even after Newcastle prices rose from about $115 to $135 a tonne since late February. Japan's coal imports are heavily concentrated in one supplier: Australia shipped 100.6 million tonnes of the 153.8 million tonnes Japan imported in 2025, with Indonesia contributing 25 million tonnes and Canada 13.7 million tonnes.
Australian coal burns hotter and cleaner than Indonesian supply, which typically sells at a discount across Asia. Japanese buyers, with deeper pockets than smaller Asian importers, are likely to keep bidding up Australian cargoes, a shift that risks squeezing buyers like Vietnam and Malaysia out of the market and pushing regional coal prices higher still.
A newly signed US Japan coal agreement, announced by Donald Trump in October 2025 as part of a wider trade package, adds a political layer but little real supply. The deal, worth about $100 million over several years between Global Coal Sales Group and Tohoku Electric Power, works out to roughly 1 million tonnes spread across multiple years, a rounding error against Japan's 150 million tonne annual coal appetite. US thermal coal also burns at a lower calorific value than Australia's Newcastle grade, and freight costs further limit its appeal.
| Supplier | Coal Imports (2025) | Notes |
|---|---|---|
| Australia | 100.6 Mt | Higher calorific value, premium pricing |
| Indonesia | 25 Mt | Typically discounted |
| Canada | 13.7 Mt | Smaller but growing share |
| United States | ~1 Mt (new deal) | Lower calorific value, added freight cost |
Nuclear Restarts Point to Where Japan's Energy Strategy Is Really Heading
Coal and reserve drawdowns are stopgaps. The real structural shift Tokyo is banking on is nuclear power, despite the lingering political scars from the 2011 Fukushima disaster. TEPCO has spent months trying to restart the Kashiwazaki Kariwa plant, the world's largest nuclear facility at 8 gigawatts of capacity. Trial transmission began in February after 14 years offline, with commercial operation once targeted for late that month. Technical delays have pushed the timeline back repeatedly, and output currently sits around just 20% of capacity with transmission paused. TEPCO is now aiming for a full restart on April 16, and the plant is meant to serve the Tokyo metropolitan area, where gas fired plants currently supply about 70% of electricity.
The current disruption is giving Japanese officials a fresh argument for accelerating nuclear restarts and building out domestic generation, a goal that predates this crisis but now carries more urgency. In the near term though, expect Japan's appetite for spot market coal to keep tightening supply across Asia Pacific, with Newcastle prices likely to stay under upward pressure. That squeeze will land hardest on smaller, less wealthy economies competing for the same cargoes, a dynamic that could shape regional energy politics well beyond whenever the Hormuz crisis itself resolves.
