Whalesbook
The Middle East conflict has sent shockwaves through global energy markets, especially for liquefied natural gas (LNG), leading to sharp price increases and significant supply cuts.
Supply Shock and Soaring Prices
The closure of the Strait of Hormuz, a critical chokepoint for about 20% of global LNG trade, combined with direct attacks on Qatar's liquefaction facilities, has caused a severe supply crunch. Missile strikes on Qatar's Ras Laffan complex reportedly damaged Train 4 and Train 6, potentially removing 12.8 million tonnes per year (MTPA) of capacity, representing around 17% of Qatar's export capability. Analysts now expect annual supply reductions of up to 35 million tonnes. Qatar and the UAE have declared force majeure for affected buyers, meaning they cannot fulfill contractual obligations.
This supply squeeze has directly fueled soaring prices. Asian spot LNG prices have jumped dramatically. The Japan-Korea Marker (JKM) reached $22.732 per million British thermal units (MMBtu) on March 20, 2026. This price is well above the $10/MMBtu level that typically supports healthy demand in emerging markets and exceeds the $18.45/MMBtu average Asian LNG spot price on March 25, 2026. Prices are expected to remain high, potentially into 2027.
Divergent Market Fortunes
The price surge is creating a clear divide in how different countries are managing. Emerging markets, especially in South Asia, are under intense pressure. India, Pakistan, and Bangladesh, heavily reliant on LNG imports, are seeing demand fall significantly as high prices force them to seek alternatives or cut consumption. Pakistan has implemented measures like a four-day work week to manage energy shortages. Industrial sectors such as petrochemicals and ceramics in India are already reporting disruptions. Their presence in the spot market adds to the upward price pressure.
Developed Asian economies like China, Japan, and South Korea are showing more resilience. China has boosted domestic gas production, increased pipeline supplies from Russia, and expanded renewables, shielding it from the worst of the crisis. High inventories and alternative routes mean disruptions to Qatari shipments, which are about 6% of China's annual gas use, are largely manageable. Japan and South Korea, also major importers, are sticking to their procurement plans, seeing Qatar as a long-term partner. Entities like JERA see no need to change their approach. Buyers in Northeast Asia are using contingency plans but benefit from existing storage buffers.
Global LNG Supply Landscape
While the Middle East faces disruptions, other major exporters are stepping in. The United States is seeing strong LNG exports, with new projects like Venture Global's Plaquemines facility coming online. The US is expected to lead supply growth through 2026 and beyond. Australia remains a major player, ranking third in February 2026 behind the US and Qatar, with 85.1 MTPA capacity. However, Australia's LNG exports dipped in the first half of 2025, partly due to lower output from Western Australia. ADNOC's Ruwais LNG project in the UAE, planned at 9.6 MTPA, is set to start by early 2028, significantly boosting regional export capacity.
Market Weaknesses and Long-Term Risks
The current geopolitical shock has revealed the global LNG market's structural weaknesses. The prolonged outage of Qatar's damaged liquefaction trains, potentially lasting until September 2027 for QE LNG, means a significant and lasting supply shortage. This highlights the market's heavy reliance on the Strait of Hormuz, a vital passage for about 20% of global LNG trade, with few alternatives for major producers. Extreme price swings make it harder for developers to secure the long-term, capital-intensive contracts needed for new liquefaction projects, potentially slowing future investment. Furthermore, the impact of demand cuts in emerging economies could permanently lower long-term demand forecasts if the crisis continues. While new US export capacity is being added, potential bottlenecks in North America could create challenges.
Long-Term Outlook: Oversupply Expected
Despite the immediate supply crunch, the global LNG market is expected to face a significant oversupply in the medium term. Major new projects in the US, Qatar, Canada, and elsewhere are set to boost liquefaction capacity sharply in 2026-2027, potentially driving prices below $10/MMBtu by late 2026. Qatar's North Field East expansion is scheduled for completion by late 2026 or early 2027.
Analysts from S&P Global, ICIS, Kpler, and Rystad Energy predict continued price swings and regional demand differences. While short-term prices are high, expectations of new supply are moderating long-term forecasts. ICIS forecasts global LNG supply to reach around 472 million tonnes in 2026. Rabobank sees Asian LNG prices averaging $16.62/MMBtu in 2026, while UBS forecasts $23.60/MMBtu for the same year. However, the ongoing conflict's lasting effects could alter these predictions, depending on how long the disruption lasts and how quickly facilities recover. The long-term market balance will depend on absorbing this new supply, with Asia expected to take most of the growth, followed by Europe potentially increasing its storage levels.