War is reshaping LNG beyond winter

If LNG leaders went to Gastech 2026 in Bangkok looking for signs of direction amid the turmoil of the conflict in the Middle East, they left sorely disappointed. But over the four days came a collective realisation that the LNG market is not going back to normality any time soon. As conference Knowledge Partner, Wood Mackenzie was at the centre of discussions. Here are our key takeaways.  

1. LNG’s reliability is no longer guaranteed

With the Strait of Hormuz closed by Iran’s stranglehold, there’s a growing consensus that a return to smooth and consistent transits is a long way away. The market seems now to be viewing the 20% of global supply behind the straits as ‘interruptible’ – even if it does return, it could easily be constrained again, feeding market volatility and further complicating contracting decisions. An important consequence is that the value of more reliable supply has increased.

2. The Middle East conflict is still centre of attention with winter coming

A multiplicity of other issues and uncertainties complicate the outlook. An immediate concern is low storage levels in Europe if Gulf capacity remains shut in. Others looming include the EU’s Methane Emissions Regulation and the impact of sanctions on Russian LNG.

3. Has LNG become indispensable?

Probably not, at least not yet, and recent buying activity is likely misleading. Some of the most price-sensitive countries in South Asia have been buying LNG even at current lofty prices (in excess of US$25/mmbtu and broadly equivalent to US$150/bbl Brent). This unexpected demand from industry is partly supported by arbitrage across the oil and gas value chains.

Refiners, for example, can burn expensive LNG to generate onsite power and still make good returns because of current astronomical product margins – diesel is selling at around US$200/bbl in Singapore. This is plainly not structural demand and may prove to be a temporary phenomenon.

4. Deal activity was low, as the market struggles for direction.

Perhaps it’s no surprise that there were only a few major announcements this week. In more stable times, the conference is often an opportunity to champion final investment decisions (FIDs) or material new sales contracts. We sense industry leaders are in a quandary, still assessing scenarios of how the conflict might play out and some way from committing to a strategic plan and capital allocation for 2027 and beyond.

5. Buyers are quietly circling.

Affordable LNG is essential to drive growth in demand, which we expect to increase by 60% through 2040. Price sensitivity is a big issue in the South and Southeast Asian economies that underpin much of that growth. And everyone was concerned about the risk that high prices will have on future demand. The disconnect between today’s crisis and tomorrow’s risk of oversupply creates uncertainty for both sellers and buyers and makes pricing contracts challenging.

But discussions this week suggest buyers are cautiously coming back to market for long-term contracts – afraid, above all, of getting the timing wrong.

6. The US stands ready to fill the supply gap.

Just under 90 mmtpa of US LNG has taken FID in 2025 and 2026. And we came into the conference hearing concerns about both the single country and Henry Hub exposure that this was bringing to contract portfolios. But there are early signs that another wave of US LNG – brownfield, perhaps even greenfield – may be inevitable largely because of the paucity of alternatives.

This would come with risks, but the speed and flexibility at which this LNG can be brought to market may give buyers little choice but to proceed.

7. But momentum on supply diversification is building.

The scale of the next US wave hinges partly on how fast the Majors move elsewhere. Projects in Mozambique, Argentina, Canada, Papua New Guinea and Indonesia are all advancing. Sponsors seemed certain that at least some will hit FID within the next 12 months. Developers are increasingly betting on floating LNG (FLNG) as the tool that finally unlocks stranded gas that's sat undeveloped for years, especially when paired with some of the commercial structuring and financing innovations US developers have pioneered.

Buyers, governments and export credit agencies are increasingly supportive of this supply diversification as they push for energy security, though the set of risks these projects carry remains an obstacle for some.

8. Contracts – relationships vs transactional

In a world that’s inherently more risky and where security of supply is at a premium, trust is key. New-school transactional contracts have eaten into the market share of the old-school relationships between seller and buyer over the past decade.

Where it goes from here will be fascinating. Logic might suggest a resurgence in relationships as buyers seek supply reliability and security. But the growing availability of free-on-board supply in the Gulf of America means some will instead seek security in the market. As a participant in one of the roundtables we chaired put it, “the long-term business remains very relationship-oriented, but in the short term they’ll kill for one cent”.

9. The industry is keen to find answers

How buyers, sellers, portfolio players and governments build commercial models to adapt to this new reality remains key. We discussed some innovative ideas with several clients. Whichever way the relationship-versus-transactional pendulum swings, careful portfolio construction that diversifies risk via geography, tenor and basis will support the growth the industry requires – limiting risk for consumers, financiers and companies alike – while underpinning the world's growing energy needs.

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