The US-Iran war has had far reaching implications beyond the immediate rise in global oil and gas prices. The Middle East conflict has led to hits on key energy infrastructure in Gulf countries, impacting future production and supply of liquefied natural gas (LNG).The conflict is disrupting the global LNG market, as rising prices, damage to key export infrastructure in Qatar, and possible delays in new supply projects cast uncertainty over demand projections, particularly from price-sensitive buyers in Asia.“We expect this gas price crisis will lead some countries to reconsider growing their gas demand at the rate we previously forecast and so LNG demand growth will be lower than our pre-war forecast,” said Lucien Mulberg, an analyst at S&P Global.
LNG Supply Constraints To Persist
Iran’s closure of the Strait of Hormuz, a critical route accounting for about 20% of global LNG trade, along with damage to Qatar’s liquefaction facilities that could sideline 12.8 million tonnes per year of capacity for three to five years, has led consultancies such as S&P Global, ICIS, Kpler and Rystad Energy to lower their global supply forecasts by as much as 35 million tonnes.This reduction is roughly 500 LNG cargoes, enough to cover more than half of Japan’s annual LNG imports or meet Bangladesh’s demand for about five years!Also Read | How Iran’s strikes on Qatar’s Ras Laffan, world’s largest LNG hub & other Middle East oil & gas infra, will impact IndiaPrior to the conflict, analysts had projected global LNG supply to increase by up to 10% this year, reaching between 460 million and 484 million metric tonnes, supported by new capacity additions, mainly from the United States and Qatar, with demand expected to grow at a similar pace, according to a Reuters report.S&P Global estimates that exports from Qatar and the United Arab Emirates could drop by about 33 million tonnes this year. It has also reduced its supply projections by an additional 19 million tonnes annually between 2027 and 2029, citing anticipated delays in Qatar’s North Field expansion and ADNOC’s Ruwais LNG projects currently under development.
LNG prices surge beyond Asian demand comfort levels
Amid the supply disruption, LNG prices in Asia have surged 143% since the US-Israeli conflict with Iran began on February 28, marking the second major spike in four years after Russia’s invasion of Ukraine.Prices have climbed to a more than three-year high of $25.30 per million British thermal units, significantly above the $10 per mmBtu level typically associated with stronger demand from emerging markets. Analysts expect prices to remain above this threshold through 2027.Rabobank has projected that Asian LNG prices will average $16.62 per mmBtu this year and $13.60 in 2027, while UBS has raised its forecast to $23.60 per mmBtu for the current year and $14.50 for the next.“In the near term, the market rebalances primarily through higher prices and demand destruction in South Asia,” said Laura Page, manager of LNG Insight at Kpler.
Industrial demand weakens across South and Southeast Asia
Around 80% of Qatar’s LNG exports are directed to Asia, but higher prices are forcing cost-sensitive buyers such as Bangladesh and India to look for alternative supplies while increasingly shifting to coal and domestic gas, the Reuters report said.Pakistan, which depends heavily on LNG imports from Qatar, has introduced measures such as a four-day work week to manage energy shortages. Demand has declined in energy-intensive industries including fertilisers and textiles.“There is a demand destruction process going on,” said Iqbal Ahmed, Chairman and CEO of Pakistan GasPort, which co-owns an LNG import terminal.In India, industrial players said sectors such as petrochemicals and ceramics have also been affected.The United States, currently the world’s largest LNG exporter, is unlikely to compensate for the shortfall, as its export facilities are operating close to full capacity and most volumes are tied up in long-term agreements.“There’s just no way to easily replace the lost volumes, and no amount of portfolio optimisation or cargo swaps will bridge the gap between the lost supply and current demand… which is a significant blow to energy security for those countries that are relying on those volumes,” said Seb Kennedy, an independent analyst at Energy Flux News.According to Sam Reynolds, LNG research lead at Institute for Energy Economics and Financial Analysis, the situation could accelerate efforts in Asia to adopt domestic energy alternatives, potentially resulting in a lasting reduction in LNG demand.
China remains largely unaffected
China, the world’s leading LNG importer, had already begun reducing its dependence on the fuel. After a decade of rapid growth in imports, Beijing shifted its strategy toward boosting domestic gas production, increasing pipeline supplies from Russia, and expanding renewable energy capacity.A state-run Chinese gas trader said that rising domestic output, additional inflows through the Power of Siberia pipeline, and continued volumes from Russia’s Arctic LNG 2 project are expected to more than compensate for any disruption in Qatari shipments, which make up about 6% of China’s annual gas consumption of roughly 400 billion cubic metres.In contrast, markets that are less sensitive to price fluctuations, such as Japan and South Korea, are unlikely to significantly alter their LNG procurement strategies. As the second- and third-largest importers globally, both countries have limited domestic gas production and lack access to pipeline supplies.JERA, Japan’s largest LNG buyer, said it continues to view Qatar as a dependable supplier and does not plan to change its contracting strategy.“I don’t think the fundamental fact that the Middle East – and Qatar in particular – plays an important role will change,” said executive Ryosuke Tsugaru.
