Japan’s Power Prices Jump 25% Driven by Rising LNG and Coal Costs

Wholesale electricity prices in Japan jumped by more than 25% early this week, driven by skyrocketing costs for liquefied natural gas (LNG) and coal.

Data from the Japan Electric Power Exchange shows that nationwide power prices climbed over 25% week-over-week to reach $0.19 (31.15 Japanese yen) per kilowatt-hour (kWh).

As one of the world’s top importers of LNG, Japan had previously scaled back gas-fired power generation during the summer in favor of coal. However, ongoing conflict in the Middle East has prompted Japan and other Asian nations to shift increasingly from gas to coal over supply availability and cost concerns. At the same time, rising global crude oil prices have elevated Japan’s total import bill for both fuels.

A bottleneck in the Strait of Hormuz has severely limited LNG export cargoes, sharpening competition between Asian and European buyers ahead of winter. By the end of last week, spot LNG prices for North-East Asia reached $29.30 per million British thermal units (MMBtu)—up from $26.50 the prior week and reaching their highest point since December 2022. Consequently, generating power from natural gas in Japan has become exceptionally costly.

The move toward coal has provided little financial relief. Benchmark Newcastle coal futures have surged 30% above pre-conflict levels, impacted by strong Asian demand and supply constraints out of Indonesia.

In addition to rising fuel expenses, scheduled seasonal maintenance at several Japanese power plants ahead of winter has restricted available capacity, placing further upward pressure on electricity prices.