Key facts
- The Middle East war has severely disrupted global liquefied natural gas (LNG) flows and prices.
- LNG prices have doubled since January, leading to demand destruction and a return to coal power in some regions.
- Attacks in the Strait of Hormuz indicate a prolonged period of subdued energy trade through the chokepoint.
- China is increasing LNG purchases, benefiting from both its own domestic production decline and potential redirection of supply.
- Despite new capacity expected by 2030, ongoing geopolitical risks may sustain high LNG prices.
The ongoing Middle East war is significantly disrupting global energy markets, with a particularly severe impact on liquefied natural gas (LNG) flows and pricing. While crude oil often dominates headlines, the situation for LNG is arguably more critical and warrants greater attention, as some analysts believe the conflict could fundamentally reshape the commodity's long-term outlook.
Shell had previously forecast a robust growth trajectory for LNG, projecting demand to reach close to 700 million tons annually by 2050, a substantial 65% increase from 2025 levels. This projection was based on countries prioritizing the flexible and reliable energy security offered by gas and LNG. Liquefaction technology has indeed enabled a truly global trade in natural gas.
However, the current conflict has led to a force majeure declaration at Qatar's liquefaction hub, the world's largest, drastically slowing LNG exports from the Persian Gulf. This scarcity has driven up prices, with LNG costs doubling since January. Buyers who paid $10 per million British thermal units (MMBtu) in January have faced prices of $20 to $22/MMBtu for much of July. This price surge is forcing energy importers to pay a premium, a situation that is expected to hurt demand.
Even nations with limited financial resources, such as Pakistan, have paid these elevated prices to secure essential gas cargos during peak demand seasons. Other major LNG importers, including Japan, the world's second-largest, have ramped up their use of coal power plants as a substitute for expensive liquefied gas. Europe is also experiencing demand destruction, falling behind on gas storage refills due to high LNG prices.
According to Gas Strategies, global LNG demand could potentially dip by 8% this year from 2025 levels if the subdued flow of gas from the Persian Gulf persists throughout the year. Recent attacks on LNG carriers in the Strait of Hormuz suggest that a normalization of energy trade through this critical chokepoint is unlikely in the near future, especially with ongoing geopolitical tensions.