- The Middle East war has severely disrupted LNG exports from the Persian Gulf, doubling LNG prices since January and tightening global supply.
- Qatar’s exports remain constrained by the Hormuz crisis.
- High LNG prices are triggering demand destruction, with countries such as Japan and Pakistan increasing coal use.
The Middle East war has caused what may well be an unprecedented degree of disruption in global energy flows. While gets a lot of the attention—and with good reason—the situation in liquefied gas is arguably worse and deserving of more attention. The war, some believe, could reshape the long-term outlook for the commodity.
At the end of June, Shell released a forecast for demand trends over the long term, seeing that demand reaching close to 700 million tons annually by 2050. That would be up by an impressive 65% from 2025 demand, the supermajor said, “as countries continue to prioritise flexible and reliable energy security offered by gas and LNG.”
LNG has indeed proven to be a flexible commodity in terms of transport. Liquefaction made natural gas trade truly global. Yet the war, which prompted a force majeure declaration for the world’s largest single liquefaction hub in Qatar, has demonstrated that there are limits to everything and LNG’s flexibility is no exception.
Because of the war, LNG exports from the Persian Gulf have slowed down to a trickle. That trickle is much appreciated by energy importers, however, and they are prepared to pay a premium for whatever liquefied gas they can get as seasonal demand hits its usual peaks in the northern hemisphere. That premium, however, has climbed quite high. Now, some believe the war premium could change the long-term outlook for the superchilled fuel.
Since January, the price of LNG has doubled. As reported by Pat Breen, chief executive of energy consultancy Gas Strategies for The National, “Buyers who paid $10 per million British thermal units (MMBtu) in January have paid $20 to $22/MMBtu for much of July.” To say that this would hurt demand for LNG is to state the obvious, and yet even Pakistan, a country with limited financial resources, has paid the premium to secure much-needed gas cargos during peak demand season.
Yet, not just Pakistan but Asia in general has also cranked up its coal power plants, including Japan, the world’s second-largest LNG importer. Coal, in other words, has come back to replace expensive liquefied gas. Europe is badly behind on its gas storage refill because of LNG prices, in a clear example of LNG demand destruction by prices. According to Gas Strategies, as cited by The National, demand for LNG globally could dip by 8% this year from 2025 if the flow of gas out of the Persian Gulf remains subdued for the duration of the year.
The likelihood of this scenario materializing appears to be quite significant, with recent attacks on LNG carriers in the Strait of Hormuz suggesting that the normalization of energy trade via the chokepoint is a long way off. With peace talks between the U.S. and Iran only taking place in media reports and not reality, it would be safe to say the squeeze will extend and deepen.
Not everyone is equally vulnerable to the Middle East war’s impact on energy commodity demand, and gas demand specifically. China, for instance, sharply reduced its LNG purchases in the second quarter of the year, but this quarter, imports have started rebounding. At the end of June, Kpler reported China was stepping up its liquefied gas purchases as demand for electricity rose with temperatures and domestic production slid lower. China is in a better position than others, such as the members of the European Union, because China imports both LNG and pipeline gas from Russia. The EU is also importing LNG from Russia—at record rates, no less-but this is set to end at the start of 2027 as the EU ban on gas imports from Russia comes into effect.
On the plus side, this could free more liquefied gas for other buyers such as, again, China, redirecting demand to other major LNG exporters, notably the United States and Australia. The U.S. is already the largest exporter of the commodity, and it is building new liquefaction capacity as we speak. Theoretically, this should lead to lower prices, but in practice, with Qatari supply still strangled by the closure of Hormuz—and attacks on vessels in the waterway—the war premium will likely remain sizable regardless of additional supply.
The National’s Breen suggests that while the short-term supply situation is tight, this will change by next year, and it will force LNG producers to think about expansion plans. By 2030, Breen said, some 207 million tons in new LNG capacity annually will come into operation—but it is unclear whether they would be buyers for it.
One could argue, however, that the risk of no buyers is rather small. As proven during every commodity cycle, the moment prices fall, demand goes up. It is what happens with oil, and it is what will inevitably happen with gas, despite a rush to secure alternative electricity generation capacity from wind and solar. The reason is simple: gas generates on-demand electricity, and it can be stored for more than a couple of hours.
Related: Hormuz Draft Agreement Reportedly Awaits Khamenei Approval
