The ongoing crisis in the Strait of Hormuz, a critical chokepoint for global LNG trade, is causing a significant shift in the liquefied natural gas market. Initially, the primary concern was supply shortages, especially after approximately one-fifth of global LNG supply was removed almost overnight due to the QatarEnergy force majeure in March. While new production from North America and Africa has offset about three-quarters of the lost Gulf deliveries, the remaining quarter has no alternative source, leading to Asian spot prices reaching over $22 per million British thermal units for much of July, a three-year high.
However, the sustained disruption and elevated costs are now impacting long-term demand. Gas Strategies forecasts a scenario where global LNG demand could fall by 8% between 2025 and 2026, marking the first annual contraction in over a decade. This downturn is attributed to the economic consequences of repeated threats, including soaring shipping and insurance costs, which erode buyer confidence. Governments are accelerating investments in renewables, electrification, storage, and domestic energy sources, while industrial consumers and utilities are seeking to reduce their exposure to imported fuels.
The crisis is fundamentally reshaping how LNG buyers contract for supply. There's a clear trend towards long-term agreements with diversified suppliers, with single-project sourcing becoming less appealing. QatarEnergy, for instance, is now seeking multi-year US LNG contracts through 2031, indicating an expectation of prolonged supply constraints from its own facilities. The International Energy Forum projects global trade of about 590 million tonnes by 2031, with the US adding 56.7 million tonnes and Qatar 34.5 million tonnes, as the market adjusts to new supply dynamics and buyer preferences shift towards energy security and affordability.
