Asian LNG Demand to Drop 3-10% as Gulf War Spikes Costs

Asian demand for liquefied natural gas is projected to decline for a second consecutive year as the US-Israeli conflict with Iran disrupts Gulf supplies. Analysts estimate regional intake will fall between 3% and 10% from 2025 levels, a sharp reversal from earlier forecasts that anticipated a 4-7% recovery driven by increased US and Qatari exports. The conflict, which began on February 28, has tightened market availability and pushed spot prices to their highest levels since December 2022.

The supply shock stems from Iranian attacks that destroyed 17% of QatarEnergy’s export capacity, forcing the company to declare force majeure and suspend shipments. Consequently, Asian spot LNG prices have more than doubled to $26 per million British thermal units (mmBtu). This price spike has rendered fuel uneconomical for energy-intensive industries, directly slashing consumption in key markets across Northeast Asia.

China leads demand destruction

China accounts for a significant portion of the regional decline, with Kpler estimating its LNG demand will drop by 6.1 million tons year-on-year. High fuel costs have forced energy-intensive sectors, including ceramics, methanol, and glass manufacturing, to reduce output or shut down plants entirely. Additionally, rapid inventory drawdowns, increased domestic gas production, and higher pipeline imports have further diminished the need for LNG cargoes.

According to Kpler analyst Nelson Xiong, discretionary stocking by Chinese buyers is being delayed due to current price levels. Major procurement activity is not expected to resume until late December 2026 or the first quarter of 2027. Meanwhile, Rystad Energy notes that lower average temperatures this year have reduced power generation needs in South Korea and Japan, further absorbing the demand destruction through alternative energy sources like coal and nuclear.

Resilient demand in South Asia

Despite the price surge and supply constraints, India and Bangladesh continue to actively secure spot cargoes. LSEG analyst Shruti Shah notes that India’s LNG demand remains supported by the city gas distribution and fertilizer sectors, which collectively account for approximately 70% of the country’s total imports. In Bangladesh, baseload power generation requirements are underpinning continued spot LNG procurement activity, demonstrating resilient demand in parts of the region.

2027 outlook remains elevated

Analysts expect Asian LNG demand to rebound to around 280 million tonnes in 2027, assuming QatarEnergy resumes exports through the Strait of Hormuz by the first quarter of next year. However, prices are forecast to remain well above pre-conflict levels. Kpler projects an average spot price of $19.30/mmBtu for 2026 and $14.90/mmBtu for 2027, while Rystad Energy sees averages above $19/mmBtu in 2026 and around $17/mmBtu in 2027.

Wood Mackenzie anticipates that prices will stay elevated even if Hormuz shipments resume, driven by Europe’s need to replenish depleted gas inventories ahead of winter. The firm expects LNG prices to range between $15 and $20/mmBtu in 2027, or exceed $20/mmBtu if the strait remains closed. These figures reflect a structural shift in the market, where geopolitical risk premiums are now embedded in long-term price expectations.