Middle East War Sparks LNG Price Surge, Demand Destruction

The ongoing Middle East war has disrupted global energy flows, but its impact on liquefied natural gas (LNG) demand is particularly concerning. Shell's long-term forecast predicts LNG demand will reach nearly 700 million tons annually by 2050, a 65% increase from 2025 levels.

LNG has proven to be a flexible commodity in terms of transport, but the war has demonstrated its limits. The conflict has slowed down LNG exports from the Persian Gulf to a trickle, causing a significant price surge.

The price of LNG has doubled since January, with buyers paying $20-$22 per million British thermal units (MMBtu) for much of July. This premium is expected to hurt demand for LNG, particularly in Asia, where coal power plants have resumed operation due to the high cost of liquefied gas.

Pakistan and other Asian countries are no exception, with even limited financial resources being spent on securing gas cargos during peak demand season. Europe's gas storage refill is also behind schedule due to LNG prices, leading to demand destruction.

Gas Strategies' CEO Pat Breen estimates that global LNG demand could dip by 8% this year from 2025 levels if the flow of gas out of the Persian Gulf remains subdued for the duration of the year. Recent attacks on LNG carriers in the Strait of Hormuz suggest that normalization of energy trade via the chokepoint is a long way off.

Not everyone is equally vulnerable to the Middle East war's impact, however. China has sharply reduced its LNG purchases in recent months but is now rebounding as demand for electricity rises with temperatures and domestic production slides lower.