Impact of Iran’s Actions on Qatar LNG Supply for Global Buyers, Including India and Pakistan; China Remains Secure
The ongoing conflict between the US and Iran is significantly impacting the global liquefied natural gas (LNG) market, leading to rising prices and supply disruptions. Key energy infrastructure in Gulf countries has been damaged, raising concerns about future production and supply. As a result, countries like India are exploring alternative energy sources due to escalating costs, while analysts predict a decline in LNG demand growth in the coming years.
LNG Supply Constraints To Persist
The closure of the Strait of Hormuz by Iran, a vital route for approximately 20% of global LNG trade, has compounded the challenges facing the LNG market. Damage to Qatar’s liquefaction facilities could potentially sideline 12.8 million tonnes of annual capacity for three to five years. In response, consultancies such as S&P Global, ICIS, Kpler, and Rystad Energy have revised their global supply forecasts downward by as much as 35 million tonnes. This reduction is equivalent to around 500 LNG cargoes, enough to satisfy more than half of Japan’s annual LNG imports or meet Bangladesh’s demand for about five years. Prior to the conflict, analysts had anticipated a 10% increase in global LNG supply this year, driven by new capacity additions primarily from the United States and Qatar. However, S&P Global now estimates that exports from Qatar and the United Arab Emirates could decline by about 33 million tonnes this year alone. Additionally, projections for future supply have been lowered by another 19 million tonnes annually between 2027 and 2029, largely due to expected delays in Qatar’s North Field expansion and ADNOC’s Ruwais LNG projects.
LNG Prices Surge Beyond Asian Demand Comfort Levels
As supply disruptions continue, LNG prices in Asia have surged by 143% since the onset of the US-Iran conflict on February 28. Prices have reached a three-year high of $25.30 per million British thermal units, significantly exceeding the $10 per mmBtu level typically associated with robust demand from emerging markets. Analysts predict that prices will remain elevated, averaging $16.62 per mmBtu this year and $13.60 in 2027, according to Rabobank. UBS has even raised its forecast to $23.60 per mmBtu for the current year. The market is expected to rebalance primarily through higher prices and reduced demand in South Asia, as noted by Laura Page, manager of LNG Insight at Kpler. This price surge is forcing countries like Bangladesh and India, which are sensitive to costs, to seek alternative energy supplies while increasingly relying on coal and domestic gas.
Industrial Demand Weakens Across South and Southeast Asia
With around 80% of Qatar’s LNG exports directed towards Asia, the rising prices are prompting cost-sensitive buyers to explore other options. Countries like Bangladesh and India are shifting towards coal and domestic gas as they grapple with the financial burden of high LNG prices. Pakistan, heavily reliant on LNG imports from Qatar, has implemented measures such as a four-day work week to cope with energy shortages. Demand has notably decreased in energy-intensive sectors, including fertilizers and textiles. Iqbal Ahmed, Chairman and CEO of Pakistan GasPort, highlighted the ongoing “demand destruction” process. In India, industries such as petrochemicals and ceramics are also feeling the pinch. The United States, currently the largest LNG exporter, is unlikely to fill the supply gap, as its export facilities are operating near full capacity and most volumes are committed to long-term contracts. Analysts warn that the inability to replace lost volumes poses a significant threat to energy security for countries dependent on these supplies.
China Remains Largely Unaffected
In contrast, China, the world’s leading LNG importer, has been proactively reducing its dependence on LNG. After a decade of rapid import growth, Beijing has shifted its focus towards enhancing domestic gas production, increasing pipeline supplies from Russia, and expanding renewable energy capacity. A state-run Chinese gas trader indicated that rising domestic output, along with additional inflows through the Power of Siberia pipeline and continued volumes from Russia’s Arctic LNG 2 project, are expected to offset any disruptions from Qatari shipments, which constitute about 6% of China’s annual gas consumption. Meanwhile, countries like Japan and South Korea, which are less sensitive to price fluctuations, are unlikely to alter their LNG procurement strategies significantly. JERA, Japan’s largest LNG buyer, continues to regard Qatar as a reliable supplier and has no plans to change its contracting approach, reaffirming the Middle East’s critical role in global energy supply.
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