LNG – short-term gains, long-term pains

In the short term, the crisis in the Middle East is likely to benefit new LNG projects outside the Gulf that are seeking to reach a final investment decision, as buyers attempt to mitigate transit risks in the Strait. However, investors may be focusing on the wrong consequence: repeated LNG crises are likely to make importers less willing to rely on LNG in the future.

LNG used to be considered a flexible tool to deal with pipeline supply issues or gas demand spikes. But for European and Asian importers, this is the second crisis in five years. Moreover, unlike in 2022, Asian importers have been uniquely exposed to the recent Middle East conflict, as the bulk of Gulf LNG exports goes to the region.

Gas buyers increasingly care about security of supply: gas (or LNG) being available at a reasonable price. Faced with these repeated crises, importers may start reconsidering their dependence on LNG. That does not mean moving systematically away from natural gas, but reassessing how much a country or a region should depend on LNG. What the LNG industry may be missing in its attempt to replace Gulf LNG is how different regions take different roads all leading to the same point: lower LNG imports. Some countries may seek to reduce gas demand through electrification and efficiency improvements. Others may diversify gas supply through domestic production and pipeline imports. Finally, some may opt for doubling down on renewables and sticking to coal.

The European Union has largely replaced Russian pipeline gas with LNG, but the region is increasingly uneasy about this new exposure, notably because of its increased dependency on US LNG and competition with Asian buyers. To reduce its reliance on imported fossil fuels, the European Commission presented its Electrification Action Plan on July 17: the plan aims to reduce gas imports by replacing residential gas heating with heat pumps and electrifying low-to-medium temperature industrial processes.

Despite being the world's largest LNG importer, China may be wary of becoming too dependent on LNG: its complicated trade relationship with the United States has reduced US LNG imports to zero over the past 18 months, and it has been the most heavily impacted country, volume-wise, by the Middle East conflict. Meanwhile, the country has many alternatives to LNG imports: domestic gas (including coal-to-gas), pipeline gas from Russia and Central Asia, and the ability to reduce gas demand growth by using more coal, renewables, and nuclear.

Additional signs of this shift are emerging in Southeast Asia, which is considered a key pillar of future LNG demand growth. Pakistan, Vietnam and Thailand illustrate how countries could turn to a mix of coal and renewables instead of LNG. Since 2022, Pakistan has witnessed a surge in solar generation. Consequently, its LNG imports have never recovered to their pre-2022 levels. As a recent LNG importer, Vietnam had strong ambitions to develop LNG-fired generation. However, in July 2026, the government proposed adjusting its power development plan, including developing more coal-fired power capacity to "strengthen energy security". Finally, Thailand announced plans in August 2026 to shift away from imported gas and embrace renewables and nuclear power. While one can express doubts about the execution of such an ambitious strategy, a statement of this scale from Southeast Asia's largest LNG importer should not be taken lightly.

These examples do not mean that every single importing country will turn away from LNG. The outcome of the 2022 crisis showed that several Asian countries such as Bangladesh doubled down on LNG despite the higher costs while others, such as Japan, have revised their future LNG requirements upward due to rising data centre needs. The rhetoric of replacing coal with LNG is still present in potential new LNG importers such as Cambodia. The need to replace declining domestic gas production will also remain.

The immediate response to the Middle East crisis is likely to be more LNG investment in order to derisk away from Hormuz. Two US LNG projects, Commonwealth and Delfin FLNG, have already taken final investment decisions over the past few months. Other projects in the United States, Canada, Mozambique, Papua New Guinea, and Argentina are also advancing toward FID. As of August 2026, around 340 billion cubic metres of LNG export capacity, about 60% of global LNG trade in 2025, is under construction and expected to start operating by the early 2030s.

LNG demand is likely to continue growing; the question is whether it will grow enough to absorb this massive wave of new supply currently under construction. Additionally, the rush to build even more LNG export capacity may compound the problem down the road, as LNG investors misjudge the current search toward alternative sources of LNG for genuine incremental demand. In contrast, choices made among selected large and small importers alike will likely lead to lower LNG demand than many expect. By the time Gulf LNG comes back, LNG exporters may find themselves competing for a smaller pool of demand than they anticipated.

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