The war with Iran is causing widespread disruption to global LNG prospects, as high prices, damage to Qatar's export infrastructure, and potential delays in new supplies have raised doubts about previously expected demand from price-sensitive Asian buyers.
Before the conflict, analysts predicted that global LNG supply would increase by up to 10 percent this year, reaching between 460 million and 484 million metric tons, with demand expected to grow at a similar pace, according to Reuters.
Event Details
However, with Iran closing the Strait of Hormuz—through which approximately 20 percent of global LNG flows pass—alongside damage to liquefaction units in Qatar, which has resulted in 12.8 million tons per year of production capacity being offline for three to five years, consulting firms such as Standard & Poor's Global Energy, ICIS, Kepler, and Rystad Energy have downgraded their global supply forecasts by as much as 35 million tons.
This volume is equivalent to about 500 LNG shipments, enough to meet more than half of Japan's annual imports or all of Bangladesh's imports for five years.
Background & Context
Standard & Poor's Global Energy expects exports from Qatar and the United Arab Emirates to decline by 33 million tons this year, and has reduced its supply forecasts by approximately 19 million tons annually for the period from 2027 to 2029, due to anticipated delays in the North Field expansion in Qatar and the Adnoc LNG projects in Ruwais, which are still under construction.
Amid supply shocks, LNG prices in Asia have surged by 143 percent since the onset of the US-Israeli war with Iran on February 28, marking the second significant price spike in four years following Russia's invasion of Ukraine.
Impact & Consequences
At levels exceeding $25.30 per million British thermal units, the highest in over three years, prices are significantly above the $10 per million British thermal units threshold, where demand in emerging markets typically begins to recover. Analysts expect prices to remain above this level until 2027.
Regional Significance
Approximately 80 percent of Qatar's LNG supplies go to Asia. Price-sensitive buyers like Bangladesh and India are seeking alternatives, shifting towards coal and domestic gas. Pakistan, which heavily relies on Qatar for LNG supplies, has begun implementing energy rationing by adopting a four-day workweek. Demand is also declining in energy-intensive sectors such as fertilizers and textiles.
In India, the petrochemical and ceramics industries have also been affected, according to industry sources. The United States, the world's largest LNG exporter, is unlikely to fill the supply gap, as US export terminals are operating near maximum capacity, and most volumes are tied to long-term contracts.
The crisis may accelerate the shift towards domestic energy alternatives in Asia, potentially leading to a permanent destruction of demand for LNG, according to Sam Reynolds, head of LNG research at the Institute for Energy Economics and Financial Analysis, which supports renewable energy.
In conclusion, the repercussions of the Iranian war appear set to continue impacting the LNG market, placing additional pressures on Asian countries that rely heavily on these supplies.