Asian LNG under pressure: what comes next for prices amid the Middle East conflict?

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Jaime Wong:

Hello, and welcome to the Platts' Commodities Focus Podcast by S&P Global Energy, where today we'll be talking about the impact of the Middle East conflict on the Asian LNG market as well as key signals to watch moving forward.

I'm Jaime Wong from the Asia LNG pricing team. Joining me today are my colleagues, Cindy Yeo, price reporter, Suyash Pande, senior price reporter, as well as James Taverner, executive director at Global Gas and LNG Research. Welcome all, and thank you for joining me today.

The Asian LNG market has already moved through the first shock of the US-Iran conflict. What began as rising geopolitical tension in the Middle East quickly turned into a supply chain concern, especially once shipping through the Strait of Hormuz was disrupted, a key route for Qatari LNG exports. So the bigger question now is where the prices go from here? As we look ahead, the focus is on how this uncertainty will shape demand and supply and what that means for prices and market behavior moving forward.

But first, let's look back at the initial market reaction. Cindy, how did buyers and sellers react at the start of the Middle East conflict?

Cindy Yeo:

At the start of the conflict, the market reaction was quite swift. Concerns over Middle East supply disruptions pushed the Platts JKM to a multi-year high, close to a mid $25 per MMBtu price, its highest level since December 2022. The main concern was the Strait of Hormuz where around 20% of global LNG supply, largely from Qatar, passes through this choke point. As shipping disruptions emerged and concerns grew over Qatar's export infrastructure, market participants began assessing the risk of prolonged supply outages and delays to cargo deliveries.

On the buyer side, the impact varied depending on each company's supply portfolio. Several importers that were heavily affected by the loss of LNG supply included India, Bangladesh, and Taiwan who entered the spot market seeking replacement cargoes. At the same time, traders and portfolio players responded quickly to the search in price volatility. Some sought to secure alternative supplies while others took advantage of the wider price swings and arbitrage opportunities across regions.

This heightened activity was reflected in trading volumes. LNG transactions reported through the physical Asia Platts Market on Close or MOC assessment process rose 77% year-on-year to 62 transactions in the first quarter of 2026 from 35 a year earlier. Activity in the derivatives market increased even more sharply with trading volumes jumping 251% year-on-year.

For those unfamiliar with it, the Platts MOC process is the price discovery process used to assess LNG prices, including the JKM benchmark. This increase in both physical and financial trading activity showed how actively participants were managing risk and responding to rapidly changing market conditions during the crisis.

And now, this will be a good opportunity to hear from Suyash who looks closely into the South Asia market. How did the South Asian market respond to the conflict initially, Suyash?

Suyash Pande:

So the impact was particularly strong on South Asia. As you can imagine, the import reliance for Bangladesh, India, Pakistan is particularly strong. Before the war, India was getting almost 60% of its imports from UAE and Qatar. So as soon as the war broke out in the region, the first impact was sharp collapse in the JKM and West India marker spread. For those of all listeners who don't know what West India marker is, it's the benchmark price for LNG cargo being delivered to India. And as soon as the ward broke out, we saw the price between WIM and JKM come down quite sharply. In fact, for a period of time, JKM, West India Marker and Southeast Asia Marker, which is the price for cargoes being delivered to Southeast Asia, were at parity to each other so that they were able to attract cargoes from the West to the East.

Since then, the spread has broadened quite a bit because of different procurement strategies. Bangladesh has been buying around 10 cargoes a month. India has been buying around that number as well. Especially in the case of India, what we have observed is a number of tenders being done for very prompt deliveries, meaning that earlier they were buying more than 25 days forward, 30 days forward. This procurement changed to less than 20 days, less than 15 days forward for deliveries.

As a result, they were able to get quite a bit of discount to the prevailing market prices because buyers had to choose between letting their cargoes float or find a buyer for the cargoes that were intended for South Asia anyway. This was a key consideration. Since then, the companies in South Asia, especially in India and in Bangladesh, have been trying to buy cargoes specifically for the sectors of fertilizers, city gas distribution, transportation, and refineries.

What we have also observed is, especially in the first few months of the war, LNG was competitive in comparison to the order of fuels of NAFTA and propane. But since then, this has not really been the case as strongly. So we have seen the competitiveness to NAFTA come down by quite a bit. Over to you, Jaime.

Jaime Wong:

Thanks, Suyash. With that in mind, what should the market watch next in Q3 and Q4?

Cindy Yeo:

Looking ahead, there are two key things that the market should watch. Firstly, whether Middle East LNG flows continue to normalize or whether disruption risks reemerge. The market has become more comfortable since the initial shock, but we have already seen how quickly risk premiums can return when concerns arise around supply or shipping lots.

Second, the Asia-Europe arbitrage will remain a key indicator for LNG prices and trade flows. We will be closely watching the spread between JKM and NWE, Northwest Europe. Put simply, this spread alongside the freight costs tell us where marginal LNG cargoes are most likely to go. When JKM trades at a premium to NWE, suppliers have an incentive to send cargoes to Asia. When the premium narrows or disappears, cargoes may be drawn back to Europe instead.

For listeners who may not be familiar with the concept, the Asia-Euro arbitrage is one of the fastest channels through which global LNG market developments are reflected in prices. It acts as a balancing mechanism between the two major demand centers and often influences trading decisions, shipping routes, and procurement strategies.

Currently, arbitrage opportunities for US-sourced cargoes is largely closed for Asia with the latest Platts' East-West arbitrage for US cargoes transiting via the Cape of Good Hope assessed at minus $1 per MMBtu.

Handing over to Suyash for his thoughts.

Suyash Pande:

So as Cindy mentioned with respect to the arbitrage considerations, some of the key factors are also something that I believe James will be touching on, which is the European storage levels, but also in Asia, the price levels at which demand destruction may happen. Earlier in the crisis, there was quite a bit of demand destruction in Bangladesh and in India and in Pakistan, especially in March and April. But since then, demand has been quite firm as these countries try to replace the volumes from the Middle East, especially in India and Bangladesh.

Going forward, it is important to note that in a country like India, there are a number of alternative fuels that need to be considered. So as and when these fuels become more competitive to LNG, there will be possibilities of switching over to these fuels. So in the case of refineries, that would be NAFTA fuel oil. And in comparison, in industries, it would be propane.

In the last couple of months or so, we have seen propane prices come down from the earlier levels that we observed in March and April, but the availability of physical propane in India still remains challenging. So number one consideration would be the availability of alternatives to LNG in the demand picture in South Asia and also going forward how the weather conditions in Northeast Asia try to pull in cargoes from the West to meet the requirements.

A key unknown at the moment is also how long does the outage remain depending on which South Asians will look to buy or delay their buying strategies. Over to you, Jaime.

Jaime Wong:

Thanks, Suyash. That helps set up the near-term pricing picture. To look at how this fits into the wider demand and supply outlook, James, what does your base case imply for Asia LNG this year?

James Taverner:

Sure, thanks. Just as Suyash highlighted there, the most important variable really is the Strait of Hormuz and how long it'll take to get flows back up closer to those pre-war levels. Now, of course, this is highly uncertain. The base case view that we've held for the past few months has assumed steady LNG flows returning from around beginning of August, and then the Qatar and UAE energy projects taking about two months or so to ramp up towards a full capacity, of course, not including the two damaged Qatar energy energy trains, which will take longer, maybe three or four years to repair.

Now, the Iran-US Memorandum of Understanding that was signed back on June the 17th did raise hopes that flows might start sooner than the beginning of August. However, of course, what's happened over the past few days, I mean, this is clearly in doubt, particularly given the attack on the Qatari LNG vessel last week.

So it's important to remember that the Middle East War has come at a time when the LNG market is rapidly growing. Before the war, LNG supply globally was projected to grow by about 11%, 11% year-on-year in 2026 based on the new projects coming online and ramping up, particularly from the US and Canada as well. However, as a result of the war, the loss Qatar and UAE supply for the Middle East War offsets nearly all of that expected growth. Instead of energy supply increasing by 11% this year, we now think it'll only increase by about 1% year-on-year instead to a very big change.

At the same time though, thinking about the global context, European gas storage levels started this year quite low, about 15, 1-5 percentage points below typical averages. So even before the war, Europe needed to import more gas this summer to refill storage. So when we add that factor into the lost supply as well, overall, it means that we now expect Asian LNG imports to fall year-on-year, which is very different from pre-war expectations.

Now, last year, 90% of the LNG that transited the Strait of Hormuz went to Asia. There's no surprise that Asian buyers have been most affected. These markets also typically more price-sensitive than Europe. I just want to highlight a few markets where we've seen the biggest drop so far year-on-year in LNG demand.

Pakistan last year, LNG from the Persian Gulf supplied about a quarter of Pakistan's total gas supply. Since the start of the war, energy imports have gone down a lot by three quarters and gas demand has been severely curtailed and Pakistan's own domestic production's been ramped up. There's also been reductions in South Korea, which is down about 10% year-on-year energy imports. And there, we've seen regulators removing caps on coal-fired generation, often imposed in spring there to improve air quality, to allow more switching away from gas.

And another key one to highlight, of course, is China. LNG imports there have been down 8% year-on-year, and a lot of that similarly has been driven by switching from gas to coal in the power sector.

Jaime Wong:

Thank you, James. That was very insightful. Looking ahead, which watch points could shift spot and forward pricing the most over the next few months?

James Taverner:

Well, as well as risks around just how quickly the Strait of Hormuz flows return, another signpost is important to watch, we just flagged it there, is European gas storage fill levels. Now one of the factors that drove prices up to record highs back in 2022, which we remember as the last major global crisis for gas pricing, that's when Russian pipeline gas flows dropped to Europe amid the conflict with Ukraine. So one of those key factors that drove prices up was European policy support to refill storage.

Now, as a reminder to everyone, gas storage is critical in Europe. It's a highly seasonal and import-dependent market. So back in 2022, European governments offered incentives for companies to refill gas storage to meet these newly introduced fill mandates, and particularly in Germany where the financial guarantee that was offered there, securing really, making sure that gas came into storage almost any price, that was a big driver of prices surging to the record levels that we all remember back from August 2022. So it's important to watch that this year as well.

So far in 2026, policy measures for storage in Europe have been quite limited, though policymakers are tracking fill levels carefully. If storage fill's not on track to get close to the target fill levels by the start of winter, remember in the European Union it's 90% near the start of November or could be lower to 80% in periods of supply disruption like we have at the moment. If we don't get close to those fill levels, there's a risk of policy intervention and support it may give to prices starts to increase.

And as ever in the gas market, as always, the weather will have a strong influence. One of our clients recently told me that they felt that gas analysts are just really weather analysts because weather's the only important thing for gas prices. Hopefully, we're persuading people here that's not quite true, but it is true to say that weather is an important factor.

And so particularly, this year, in the context of developing El Nino conditions and the risk of above average temperatures and in some areas as well, you have below average rainfall and hydropower availability.

Jaime Wong:

Thank you, James. To close on a longer term note, what changes to LNG term contract negotiations do you see moving forward?

James Taverner:

Well, it's quite early days to see really what's happening, but this crisis, I think, has really reminded LNG buyers and policymakers around the world of the importance of diversity in security of supply, not just diversity of energy sources: gas, coal, renewables, oil, et cetera, but also the diversity of the LNG supply too.

Now, geographical diversity has been highlighted here as critical. So Qatar LNG has historically had a strong reputation for reliability, but now it's possible some buyers may view Qatar and UAE LNG as being maybe more at risk of disruption in future. Iran has shown how it can disrupt shipping through the Gulf give quite quick impacts. So could that happen again?

So we've been hearing when we speak to LNG buyers, they've been asking how can we diversify our sources of supply geographically? Now we recognize there's other risks. The US, of course, with the increased concentration of US energy supply there, particularly around the Gulf, Mexico where there's hurricane risks and so on, but buyers are clearly looking for how they can improve diversity.

So for the next wave of LNG contracting, we might expect security of supply to jump right to the top of buyers and policymakers' concerns again and influence their decision-making just as it did back in 2022 as well.

Jaime Wong:

Thank you, James, for your insight. That wraps up today's discussion on how the US-Iran conflict is affecting the Asian LNG market as well as the key signals the market will be watching next. The situation remains fluid and we will continue to track what it means for LNG prices, supply and demand.

Thanks very much to Cindy, Suyash, and James for joining me in this conversation. And of course, thank you for listening. This Commodities Focus episode was produced by Chandreyee Mukherjee in Gurgaon.