Asian LNG Demand Set to Fall Again as Gulf Conflict Tightens Supply

Asian demand for liquefied natural gas is on course to contract for a second consecutive year, as the US-Israeli war on Iran constrains Gulf supplies, squeezes market availability and drives prices to multi-year highs that curb consumption.

Analysts put the decline at 3% to 10% below 2025 levels, with Northeast Asia accounting for the bulk of the demand destruction before a recovery in 2027.

"A lot of that demand destruction has been absorbed by Northeast Asia ... they have coal, they have some nuclear availability. Depending on the country's power mix, they were able to bring down their LNG demand," said Rystad Energy analyst Lu Ming Pang.

Milder average temperatures in several months of the year also trimmed power generation needs, he said, noting that electricity demand and output in South Korea and Japan were both lower year-on-year.

China is central to the Northeast Asian pullback, with Kpler projecting its LNG demand to fall by 6.1 million tonnes year-on-year as high prices weigh on industrial gas use. Energy-intensive sectors such as ceramics, methanol and glass have cut output or shut plants because fuel costs have turned uneconomical, while rapid inventory drawdowns, rising domestic gas production and higher pipeline imports have further reduced the need for LNG cargoes, analyst Nelson Xiong said.

"Under current high prices, discretionary stocking is also going to be delayed for Chinese buyers. We think the major discretionary stocking is going to come in late December or Q1 2027 onwards," he added.

Asia's LNG demand had already fallen in 2025 and was expected to recover by 4-7% this year on lower prices, supported by rising US and Qatari supplies. But the conflict that began on February 28 disrupted Gulf flows, forcing top exporter QatarEnergy to declare force majeure and suspend exports after Iranian attacks knocked out 17% of its LNG export capacity.

Asian spot LNG prices have since more than doubled to $26 per million British thermal units, their highest since December 2022.

Even with high prices and constrained supply, India and Bangladesh kept actively securing spot cargoes, signalling resilient demand, said LSEG analyst Shruti Shah. In India, LNG demand is expected to remain predominantly supported by the city gas distribution and fertiliser sectors, which together account for roughly 70% of the country's total LNG imports, she said, while baseload power generation requirements will underpin Bangladesh's spot procurement activity.

High prices to persist in 2027

Assuming QatarEnergy can resume exports through the Strait of Hormuz and ramp up production by the first quarter of 2027, excluding capacity lost from damage to two liquefaction trains, Rystad Energy and Kpler see Asian LNG demand rebounding to around 280 million tonnes next year.

Prices, however, are expected to stay well above pre-conflict levels. Kpler forecasts Asian spot LNG prices to average $19.30/mmBtu this year and $14.90/mmBtu in 2027, while Rystad Energy sees average prices above $19/mmBtu in 2026 and around $17/mmBtu next year.

Wood Mackenzie expects prices to remain elevated even if shipments through the Strait of Hormuz resume by year-end, driven by Europe's need to replenish depleted gas inventories ahead of the following winter.

"A lot of the upside next year will come from Europe's requirement to get gas into storage," said Massimo Di Odoardo, vice president of gas and LNG research, adding that he expects LNG prices to remain at $15-20/mmBtu in 2027 and above $20/mmBtu if the Strait of Hormuz stays closed.