Is the LNG market facing a multi-year shortage, even if the war with Iran ends tomorrow? Analysis

The main thing in the material:

— New attacks on the energy infrastructure of the Persian Gulf countries have turned a local failure of LNG supplies into the risk of a multi-year shortage.

— The global supply chain operates almost without reserve — capacity utilization has exceeded 97% in recent years. The lack of LNG reserves enhances the effect of any disruptions.

— Russia benefits from rising prices, but is limited by sanctions and cannot quickly increase exports.

— The expected growth in LNG supplies from North America will mitigate the shortage, but not eliminate it completely.

New attacks on the Persian Gulf gas infrastructure have changed expectations in the LNG market. If the initial shutdown of shipments from the largest export hub looked like a military episode with a short-term price spike, now we are talking about the risk of a multi-year distortion in the global gas balance. Damage to capacities in Qatar, attacks on facilities in Iran, increased dependence of Europe and Asia on LNG supplies and, at the same time, sanctions restrictions on Russian projects add up to a key question: how long can the shortage of LNG be, even outside the direct logic of war, and who will gain an advantage in these conditions. Details can be found in the Izvestia article.

The deficit is determined not by the front, but by repairs.

According to data from the beginning of this week, over 40 energy facilities were seriously damaged in nine Middle Eastern countries during the escalation of the conflict with Iran. The cumulative damage from the current disruptions in energy supplies is comparable to the consequences of two major crises — the oil crisis of the 1970s and the gas crisis of 2022 - combined.

In the context of the situation with liquefied natural gas, the main cause of the crisis is the Iranian attacks on facilities in Qatar, including the largest LNG production complex in Ras Laffan with a capacity of 77 million tons per year, and the closure of the Strait of Hormuz. After repeated attacks on QatarEnergy's infrastructure, the company will be forced to declare force majeure on long-term gas supply contracts to Italy, Belgium, South Korea and China. Overall, the Iranian attacks disabled 17% of Qatar's export capacity, resulting in a loss of approximately $20 billion in annual revenue. Due to the downtime associated with the need for repairs, the annual volume loss on the market will amount to 12.8 million tons, and this situation will last for three to five years.

It doesn't count for weeks or quarters, because the LNG market is infrastructural. The rate of resumption of production is determined not by price, but by the availability of equipment and contractors, and this is where bottlenecks arise. The delivery time of key infrastructure elements, such as liquefaction plants, is measured in years. It turns out that even if the intensity of hostilities subsides, the LNG shortage will persist, because it is tied to the timing of industrial recovery, and not just political decisions. Therefore, the formula "peace will come — prices will roll back" is too primitive for the LNG market. Analysts advise preparing for gas prices in the region of $ 1.1 thousand per 1,000 cubic meters.

A market without an airbag

The LNG market is largely tied to multi-year contracts that ensure supplies by a certain deadline. The reason is that the gas after cooling is susceptible to evaporation, storage facilities are expensive and take time to build. The entire infrastructure, including ships and terminals, is highly specialized. There is no global cluster of strategic LNG reserves, as in the case of oil. The average load of plants exporting liquefied natural gas from 2021 to 2025 was more than 97%. That is, the system operates with almost no reserve, which means there are few free parties. Therefore, the downtime of even part of the Qatari capacity is immediately reflected in the entire supply chain. For Europe and Asia, this means not just expensive gas, but competition for every available shipment. When the LNG market becomes a market for fighting for illegally contracted volumes, it is not the most needy who win, but those who are willing to pay more and faster (we wrote about this in detail here).

The shortage in the LNG market may drag on to the point where the cumulative increase in other projects will cover not only the Qatari losses, but also the increasing global demand, especially in Asian markets. The International Energy Agency expected global LNG production to increase by more than 7% in 2026, with supply growth reaching its fastest pace since 2019. The key drivers of this trend are projected to be the United States, Canada and Mexico, which will provide 85% growth. But now it is clear that there will be no oversupply, which was previously predicted this year. Production in North America will increase, but due to the escalation in the Middle East, the balance will quickly turn negative. In fact, the new wave of supplies will simply mitigate the market situation, rather than eliminate the already existing shortage of energy resources.

Russia gets a window, but not full control

The situation is ambiguous for Russia. On the one hand, the higher the nervousness in the global LNG market, the higher the value of any available export volume. This automatically increases the importance of projects such as Yamal LNG and Sakhalin-2.

However, Russia cannot fully capitalize on the crisis as it could with free access to markets, ships, and technology. American sanctions and problems with the fleet, in particular, limit the development of the Arctic LNG-2 project with an estimated capacity of almost 20 million tons per year. It was planned to achieve this figure through the commissioning of three technological liquefaction lines. Only two of them are ready yet. Construction of the facility started in 2018, and the first shipments began only in 2025. The project is faced with the difficulty of bringing goods to market, that is, they can produce LNG, but they will not be able to quickly "flood" the market with new volumes. In this context, Russia today is more a beneficiary of stress than its full-fledged stabilizer.

Who wins and who pays for the deficit

In a long trajectory, the main winnings are taken by players who are able to quickly bring new volumes to the market and ensure prompt deliveries. That is, strategically, the crisis around Iran and Qatar strengthens the US market position as the main supplier of LNG. American gas costs customers more, but the market has long ceased to be purely price-based. After 2022, availability, flexibility, and reliability of supplies have become key factors, and according to these parameters, the United States is stronger than some of its competitors.

This is especially true for Europe, which has reduced the supply of Russian pipeline gas and rebuilt its energy system for LNG. European storage facilities, depleted after the winter, now need to be restored. European Commissioner for Energy Dan Jorgensen called for this to be done in advance to avoid competition for supplies in the summer, and also recommended lowering storage capacity targets to 80%. Analysts believe that the demand for LNG in Europe will only grow, which means that dependence on this type of fuel on the continent will increase even more. At the same time, against the background of the crisis, the European Commission announced that it would adhere to plans to completely abandon supplies of Russian liquefied natural gas by 2027. Nevertheless, in January, LNG shipments from Russia to Europe increased by 15.5%, to 1.6 million tons.

Gas shortages are already being observed in developing Asian countries, which purchase the lion's share of Qatar's LNG. Pakistan's dependence on this energy resource from Qatar is 99%. Islamabad has warned that starting in mid-April, there may not be enough gas to meet electricity needs. The country's textile industry, which accounts for a significant portion of exports, will suffer from this.

Bloomberg writes that the cost of one LNG shipment for Asia is about $80 million— twice as high as before the outbreak of the war in Iran. Despite this, a number of countries, including Bangladesh and Japan, are trying to negotiate additional supplies with the United States and Australia. Vietnam and the Philippines have effectively suspended new purchases until prices drop. As a result, some Asian countries are forced to increase their consumption of coal, the most polluting fossil fuel.

How long will the crisis last

The LNG shortage depends on the war only partially. Even if the intensity of hostilities decreases tomorrow, the market will remain hostage to the industrial cycle: damage diagnostics, equipment supplies, train repairs, contract restarts and reconfiguration of global logistics.

The base period of the deficit is measured in quarters, while the market digests the loss of part of the Qatari capacity and redistributes free cargo between Europe and Asia. A realistic scenario is two to three years of increased price competition, if some of the lost volumes can be covered by North America and weaker demand in some periods. The tough scenario is up to five years if repairs in Qatar really take that long, and the launch of some of the new global projects will be delayed.

Against this background, Russia gets a tactical window for LNG monetization, but not strategic freedom of action: sanctions and the European rejection of Russian gas do not allow Moscow to turn a temporary advantage into an unconditional victory.