The last Persian Gulf LNG ship is about to arrive, and the global natural gas supply is nearing the edge of a cliff.

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The last batch of LNG shipments from the Persian Gulf destined for Asian and European importing countries is about to arrive, with a supply cliff effect emerging. Natural gas prices have doubled, and highly dependent countries such as Pakistan are facing a “supply cut-off” dilemma.

As Iran blocks the Strait of Hormuz and launches missile attacks on Qatar’s largest liquefied natural gas facility, the global LNG supply structure has suffered a fundamental shock. According to analysis by independent ship broker Affinity, LNG shipments from the Persian Gulf that were already en route before the outbreak of war will arrive at their destinations over the next 10 days, after which some importing countries will lose all supply from that region.

The market has already responded. The Asian LNG benchmark price, Platts JKM, has doubled to about $23 per million British thermal units since the outbreak of the war. Shipping costs have also climbed sharply due to higher charter rates and longer alternative routes. Qatar’s Minister of Energy, Saad Al-Kaabi, stated this week that, as a result of the attacks, 17% of Qatar’s LNG capacity will remain offline for the next three to five years, and force majeure may be declared on some long-term contracts.

This situation will force global importers to make tough choices between competing for alternative supplies such as from the U.S., switching fuels, and implementing demand rationing. Many Asian countries lacking oil and gas resources have begun to implement energy conservation measures, and some have even instituted four-day workweeks.

Supply cliff approaching, countdown for last shipments

According to vessel tracking data, there are still LNG shipments from the Persian Gulf scheduled to arrive in Asia—which usually absorbs about 90% of the region's LNG exports. There are also six shipments still in transit to Europe. Once these shipments are delivered, supply from the Persian Gulf will be completely cut off.

Qatar produces about one-fifth of global LNG. After the Strait of Hormuz was blocked, exports were forced to halt. This week, Qatar’s Ras Laffan LNG plant was further struck by Iranian missiles. This facility accounts for the majority of Qatar’s LNG production capacity. Al-Kaabi pointed out that this damage will lead to long-term losses of the country’s LNG capacity, clearly saying force majeure will be declared on long-term contracts, with durations up to five years. This means the global LNG market will face a structural supply gap lasting years rather than months.

Pakistan faces the deepest crisis, supply cut-off by month-end

Among all affected countries, Pakistan is in the most precarious position. Last year, about 99% of Pakistan’s LNG imports came from Qatar. The last batch from Ras Laffan arrived on the second and third day after Iran’s war began.

Currently, the throughput at Pakistan’s two LNG import terminals has dropped to one-sixth of normal levels. According to two informed sources, both terminals will completely cease gas distribution by the end of the month. One terminal operated by Pakistan GasPort, whose chairman and CEO is Iqbal Ahmed, will exhaust its LNG stockpiles within days. "We will have a complete supply cut-off afterwards," he said. "We don’t know when the next shipment will arrive."

Iqbal Ahmed expects that if the conflict continues, Pakistan will shift massively to more expensive and more polluting fuel oil generation. "I foresee a very tough year, followed by two to three years of difficult times," he said. Bangladesh is in a similar situation, but is slightly better off because some of its LNG comes from regions outside the Persian Gulf. The local government has started gas rationing measures, including shutting down universities.

Japan, although the world’s second-largest LNG importer, receives only about 6% of its supply via the Strait of Hormuz, which is relatively low. A Japanese LNG trader said: "Our plan is to make up the shortfall by purchasing from the JKM spot market." However, another trader said Japanese buyers are mostly adopting a wait-and-see attitude and plan to revert to coal. "Only a few buyers are considering spot purchases." Japan also plans to expand coal and nuclear power usage, having partially restarted the world’s largest nuclear plant in Niigata Prefecture in January this year.

Supply tightness may persist for years, structural market pressure

Until more ships are allowed to pass through the Strait of Hormuz, the global LNG market will remain tight. Even if the strait reopens, due to damage at Ras Laffan, about 17% of Qatar’s LNG capacity will not recover within three to five years, and market supply will remain below pre-war levels for a long time.

The force majeure clause declared by Qatar’s Minister of Energy, Al-Kaabi, means that buyers worldwide holding long-term contracts with Qatar will have to rely on the spot market to fill the gap. Asian JKM spot prices have already doubled compared to before the war, further increasing the energy cost pressure faced by importing countries. For developing countries with fragile finances, the contradiction between high spot prices and limited foreign exchange reserves will be the core challenge to energy security in the coming years.

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