Asian LNG demand to drop for second consecutive year due to war reducing supply
The US-Israeli conflict against 'Iran' will cause a decline in Asian demand for Liquefied Natural Gas for the second consecutive year. This is due to the US-Israeli military campaign on the gulf, which has curtailed Gulf supplies. It also tightens the market and raises prices to levels that have not been seen for many years.
Analysts expect Asian LNG demand will fall between 3-10% from levels in 2025, with Northeast Asia suffering the most demand destruction before it recovers again in 2027.
"A large part of the demand destruction was absorbed by Northeast Asia... They have coal and some nuclear available. Lu Ming Pan, Rystad analyst, said that the power mix of a country can affect its LNG demand.
He said that the average temperatures were lower in some months of this year than they were last year. This reduced the need for electricity generation.
According to Kpler, China is responsible for the majority of the decline in demand, with a drop of 6.1 million tonnes year-on-year due to high prices affecting industrial gas consumption.
Analyst Nelson Xiong stated that China's LNG import needs have been further reduced by rapid inventory drawdowns and growing domestic gas production.
The Chinese will also be delayed in their discretionary stocking due to the current high prices. He added that he believes the bulk of discretionary'stocking will occur in Q1 or late December 2027.
The price of LNG is expected to fall by 4-7 percent this year, fueled by the rising U.S. supplies and Qatari LNG.
The conflict, which began on 28 February, disrupted Gulf supply. Top exporter QatarEnergy was forced to declare force majeure after Iranian attacks destroyed 17% of its LNG capacity.
Asia Spot LNG Prices
Shruti Shah, LSEG analyst, noted that despite high prices and limited supply, India, Bangladesh, and other countries continued to secure spot cargoes. This shows a resilient demand.
She said that in India, the demand for LNG will be primarily supported by the city-gas distribution and fertilizer sectors. These two sectors account for about 70% of India's total LNG imports, while the spot LNG purchases from Bangladesh will be driven by baseload power generation needs.
High?Prices in 2027
Rystad Energy?and Kpler predict that Asian LNG demand will rebound to 280 million tonnes in 2020, based on the assumption that QatarEnergy is able to resume exports via the Strait of Hormuz, and increase production by Q1 of 2027. This excludes capacity lost due to damage to two liquefaction train.
The prices are expected to remain well above the levels before the conflict. Kpler predicts Asian spot LNG to average $19.30/mmBtu for this year, and $14.90/mmBtu by 2027. Rystad Energy expects prices to be above $19/mmBtu at the end of 2026 and below $17/mmBtu during next year.
Wood Mackenzie predicts that prices will remain high even if shipping through the Strait of Hormuz is resumed by the end of the year, due to Europe's desire to replenish its depleted stock of gas in preparation for the winter.
Massimo Di Odoardo is the vice president of LNG and gas research. He said that the European requirement to store gas will be a big factor in the price of LNG next year.
(source: Reuters)
