The Iran war unexpectedly accelerates global LNG capacity expansion—Is oversupply just around the corner?

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The blockade of the Strait of Hormuz triggered by the Iran war is reshaping the long-term landscape of the global liquefied natural gas (LNG) market in an unexpected way.

The Strait of Hormuz blockade has caused a sudden drop of about 20% in global LNG supply. The Asian benchmark price JKM once surged to about $30 per million British thermal units (MMBtu) in March this year, a sharp rise from less than $11 in February. However, Bloomberg columnist Javier Blas points out that unless negotiations between Washington and Tehran break down and the blockade continues beyond July, LNG prices are expected to fall back and remain low for an extended period.

The more far-reaching impact lies in structural changes on both the supply and demand sides: this crisis will prompt Asian buyers to fund LNG projects in North America, Africa, and Latin America on a large scale, while also driving some demand to shift to solar and coal. According to the International Energy Agency (IEA), the global LNG industry approved up to 100 billion cubic meters of new capacity last year, a record high. With multiple factors at play, a buyer’s market is rapidly taking shape.

Short-term Price Impact May Not Be That High

Although the Iran war has had a severe impact on the LNG market, its intensity is far less than during the 2022 Russia-Ukraine conflict. The JKM benchmark price briefly touched about $30/MMBtu in March this year, whereas in 2022 it had jumped about eightfold, once approaching $70.

The world’s largest LNG plant is currently shut down, with Qatar stating that repairs will take at least three years. Meanwhile, the Strait of Hormuz blockade has directly cut off about 20% of global LNG supply, with price-sensitive importers such as India, Bangladesh, and Pakistan being hit particularly hard.

Currently, European importers are taking this opportunity to accelerate storage to prepare for the 2026–2027 winter heating season, and all parties are increasing security stockpiles in response to the possibility of further escalation in the Gulf, which will provide some short-term price support. But Blas believes that this is merely the final buffer period before the buyer’s market arrives.

"All Projects Outside Hormuz Will Commence"

The blockade of the Strait of Hormuz has fundamentally changed how Asian policymakers view energy security. Blas believes that no rational Asian decision-maker will ever again regard this waterway as a reliable channel. Reducing dependence on Qatar and the UAE will become a top strategic priority for all countries.

The market outcome of this logic can be summed up simply: all LNG projects outside Hormuz will now have construction opportunities. Projects that looked hopeless just 90 days ago can now count on funding from Asian buyers. As a result, LNG export projects in North America, Africa, and Latin America will experience a construction boom.

Meanwhile, Qatar will exploit its low-cost advantage to seek buyers and plan for expansion, even though the timetable may be delayed by 6 to 18 months. Blas says that however long the delay, the impact on the market landscape by around 2030 will remain relatively limited.

Third Supply Wave: Larger, More Persistent

Looking back, the global LNG market has typically absorbed each supply expansion wave in two to three years. In the first wave from 2009 to 2011, the completion of several projects in Qatar boosted global supply by about 40%. The second wave from 2016 to 2019 saw the U.S. shale revolution lead to a substantial increase in LNG export capacity, with a 45% rise in global supply. The European market—especially after 2022, when Europe was compelled to reduce Russian pipeline gas—played a key role in absorbing this excess.

Before the Iran war erupted, the market was already preparing for a third expansion wave expected to last from 2026 to 2030, and the prospect of a supply glut was beginning to emerge. Now, not only has this wave not been canceled, but it is likely to become even larger and last longer as Asian buyers support more overseas projects—though the overall pace may be delayed by about a year because of the Hormuz blockade.

According to the latest IEA estimates, newly approved LNG capacity last year reached 100 billion cubic meters, a record. IEA data also shows that more than 700 billion cubic meters of projects globally are currently seeking final investment decisions, of which about 110 billion cubic meters are in the U.S. and have already been approved by regulators. In 2025, total global LNG output will be about 60 billion cubic meters. Blas notes that if all these projects come to fruition, global LNG supply would more than double from current levels.

Demand Side Shift: Coal and Solar as Beneficiaries

The extent to which the supply wave can be absorbed depends on whether demand can keep up—and Blas is skeptical, at least at pre-war price levels. He notes that LNG has suffered two blows to its credibility over the past four years: once in the Russia-Ukraine conflict and again in the Iran war. No serious policymaker wants to wait for a third shock.

On the demand side, major importing countries are accelerating diversification into other energy sources. Options for Asian countries include solar photovoltaic power with battery storage, as well as abundant coal. Blas draws an analogy to the 1970s: the oil crisis forced industrialized countries to turn massively to coal, when nuclear power was almost the only alternative. Now, Asia is able to embrace both cheap solar energy and coal at the same time.

As a result, coal is likely to benefit not only in power generation but also gain a new position as an “energy security commodity” in the chemical and fertilizer sectors through coal-to-chemicals routes. This imposes unmistakeable constraints on the long-term outlook for LNG demand growth.

Beyond the known variables above, there’s another potential factor that could further exacerbate oversupply—if the Russia-Ukraine conflict ends, more Russian natural gas could re-enter the global market, adding another layer of pressure to an already easing LNG supply-demand balance.

Blas concludes with an old rule of the commodity markets: today’s high oil prices sow the seeds of tomorrow’s low prices. History has repeatedly shown that the LNG market can switch from shortage to surplus much faster than expected.

Risk Warning and DisclaimerThe market involves risk, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article suit their specific circumstances. Investment is at your own risk. ```