Tim Daiss is a journalist and analyst who has covered energy markets, sustainability and geopolitics in the Asia-Pacific region for the past 15 years.

Forecasts show Northeast Asian liquefied natural gas demand continuing to fall because of multiyear high prices triggered by the war in the Middle East and reduced supply. Whether that is good news or cause for concern depends on what replaces gas, particularly if high LNG prices push power producers back toward coal.

When used to produce electricity, gas creates around half the carbon emissions of coal, the world's dirtiest burning fossil fuel, according to the U.S. Energy Information Administration. Worse yet, research shows gas leakage across the entire gas value chain, from drilling and extraction to shipment in large ocean-going specialized LNG tankers traversing thousands of kilometers to end users.

These problems caused the Paris-based International Energy Agency (IEA) to make a hard pivot from referring to the "golden age of gas" just a few years ago to warning that gas was not the ideal transition fuel to renewables.

Wood Mackenzie forecasts a second consecutive annual decline in Asian LNG demand in 2026, driven by supply disruptions, higher spot prices, reduced purchases and fuel switching. Northeast Asia is particularly affected, with demand forecast to decline from 202 million metric tons in 2025 to 191 million tons in 2026.

There's an important geographical distinction. The consultancy forecasts Southeast Asian LNG demand rising from 27 million tons in 2025 to 31 million tons in 2026, even as broader Asia-Pacific demand falls. As such, there's a usage divergence in the region.

The problem isn't just a stoppage of LNG flows to Northeast Asia. The bigger concern is the fuel that's being used to replace gas. The IEA's July 7 Gas Market Report confirms that disrupted LNG flows through the Strait of Hormuz have tightened supply, raised prices and encouraged Asian power producers to switch toward coal.

Unfortunately, supply economics continue to favor coal as an inexpensive fuel replacement. Reuters reported on Oct. 9 that Australian thermal coal is currently about 80% cheaper than LNG delivered to Asia, creating conditions for a fourth-quarter rebound in coal exports from Indonesia and Australia.

Reuters identified the widest coal-to-LNG price discount in four years. Elevated LNG prices give Asian utilities a powerful incentive to favor coal, particularly as winter restocking begins. Huaneng Huaiyin Power Plant in Huai'an City, Jiangsu Province, China on Aug. 3.

Australia ranks as the world's largest coal exporter by value, accounting for about 35% of global coal export share (valued around $55.86 billion), according to data provided by global energy monitors and reporting agencies. As well as thermal coal, Australia is also a leading global supplier of coking coal, which is used in steelmaking.

Indonesia, Southeast Asia's largest economy, ranks as the world's second-largest coal exporter by value, responsible for around 19% to 19.6% of global coal exports (valued around $30.48 billion). But it remains the world's top exporter of thermal coal used in the power sector.

Admittedly, with the price of LNG at multiyear highs and creating demand destruction, Asian energy importers can be given a pass for pivoting to much-cheaper coal, but there's a caveat. Only in the short term. Once Middle Eastern gas supply stoppages are resolved, countries should pivot away from coal. At the same time, it shouldn't be a full turn back to gas. We've already seen that gas is no longer considered the ideal power generation fuel. The region can use the crisis to accelerate rather than derail its energy transition.

Governments should pair temporary increases in coal-fired generation with faster deployment of battery energy storage systems (BESS), while accelerating solar and wind development, which can be brought online much faster than most conventional fossil fuel power projects. Asia can take advantage of the LNG supply shock, but only if governments act fast.

However, financing and investment are needed to make the pivot. According to BloombergNEF, Southeast Asia requires $3.4 trillion for renewables, BESS and grids. Northeast Asia has an even higher price tag. China needs a staggering $46.3 trillion in energy system investment to reach decarbonization goals. South Korea alone needs $2.7 trillion, while Japan faces an estimated $6.7 trillion investment to reach its net-zero goals.

Still, like most things related to the energy sector, there's a catch. China and Northeast Asia face restrictive grid infrastructure and outdated power market regulations. Japan and South Korea, for their part, are grappling with electrical grid monopolies and yearslong delays connecting new wind and solar projects. Meanwhile, the entire region faces land and tariff constraints, skyrocketing land costs and hidden supply chain friction.

Southeast Asia has different -- and perhaps even more challenging -- hurdles to overcome, namely financing, particularly BESS investment. BESS can store electricity when supply is abundant and release it when needed. It's crucial for intermittent renewable sources such as solar and wind, helping balance the grid when the sun is not shining or the wind isn't blowing.

BESS can also reduce the need to fire up expensive gas-fired "peaker" plants, potentially reducing gas consumption and exposure to volatile LNG prices. Yet, without enough financing, BESS will remain underutilized and could force a continued reliance on gas and even coal-fired power generation.

That makes energy storage financing more than a technical problem. It's central to whether Southeast Asia can reduce its dependence on imported LNG without falling back on coal. The same challenge applies across the entire Asia-Pacific region. Current LNG supply volatility exposes how vulnerable the region's power sector is, but it's also created an opportunity to accelerate investment in renewables, storage and stronger grids rather than simply replacing expensive gas with cheaper coal.

If governments seize that opportunity, today's LNG crisis could become a catalyst for reducing dependence on both coal and imported gas. If they don't, Asia risks replacing one form of energy insecurity with another.