Gulf Supply Disruptions Trigger a Structural Shift in the LNG Market
The disruption of liquefied natural gas (LNG) supplies from Qatar and the United Arab Emirates (UAE) has fundamentally altered market dynamics, prompting buyers to reconsider their procurement strategies and long-term energy requirements. According to Drewry experts, the consequences of the supply crisis that began at the end of February could reshape the LNG market for years to come.
During a recent webinar, Rahul Sharan of Drewry examined the impact of the past six months of supply interruptions. Although a small number of LNG cargoes have recently transited the Strait of Hormuz, the volumes remain negligible compared with previous flows.
Before the disruption in late February, Qatar and the UAE together accounted for approximately one-fifth of global LNG demand, with most of their shipments destined for Asian markets.
Asian Buyers Turn to Alternative Energy Sources
The breakdown of established supply routes, combined with exceptionally high prices, has forced Asian buyers to reassess their energy strategies. Drewry analysts reported that several countries are increasingly turning to alternative sources, including coal, nuclear power and renewable energy.
LNG importers in Japan, South Korea and China have also sought to diversify their supply base, with greater reliance on shipments from the United States and Australia.
These adjustments reflect a broader shift in purchasing priorities as buyers seek to reduce their exposure to supply disruptions and volatile prices.
European Demand Faces Uncertainty Ahead of Winter
Europe is also facing a changing LNG market environment. The final quarter of the year is traditionally a peak period for European LNG demand, but expectations for this seasonal increase have largely disappeared under current conditions.
The severity of the coming winter remains a key uncertainty. A mild winter could keep European demand subdued for an extended period, further influencing global LNG consumption and trade flows.
LNG project expansion may start losing steam
The world’s LNG production capacity has been expanding quickly, supported by major projects in countries such as the United States, Qatar, Argentina and several African nations.
Drewry analysts see these projects going ahead but the rate of development may slow as demand cools and buyers take a more cautious approach to procurement.
Rahul Sharan and Santosh Gupta, deputy director of maritime financial research at Drewry, said it could be a long-term change in buying behavior. Companies that had been dependent on just-in-time LNG deliveries are increasingly indicating their intention to secure a larger portion of their needs through contracted volumes and to diversify their overall energy mix.
The shift indicates that supply security is an important factor in buying decisions and may reduce buyers’ exposure to sudden interruptions.
Stockpiling Strategies Could Replace Just-in-Time Deliveries
Drewry experts believe that LNG consumers with depleted inventories are unlikely to hurry to replenish them at current price levels.
Instead, buyers might wait for better market conditions to rebuild their inventories. When they do, they are expected to build bigger LNG inventories and be less reliant on just-in-time deliveries.
It would impact inventory management, procurement planning and timing of LNG purchases, but could also change demand patterns across key importing markets.
Record LNG Carrier Orders Signal Changing Outlook
The expected slowdown in LNG demand could also affect the pace of new project development. Prior to the onset of the supply crunch in February, the rapid growth in planned LNG projects was the primary driver behind record contracting activity for LNG carriers.
The global LNG carrier orderbook is currently at a record high of around 270 vessels on order.
However, if demand growth decelerates and new LNG developments take longer to come to fruition, the industry could see a different balance between shipping capacity and future transport needs. The evolution of LNG trade flows is particularly important for the maritime sector, given the size of the existing orderbook.
Russian LNG still a mystery
Drewry’s experts also point to another unresolved issue – the possible effect of US President Donald Trump’s recent deal on Russian diesel.
The analysts said the developments surrounding the deal could provide an opening for Russian LNG back into the market.
Whether or not this scenario comes to pass, any return to a role for Russian LNG would add another variable to an already changing global energy landscape.
Buyers are trying to build larger inventories and more secure contracts to diversify supply, and the LNG market appears to be moving away from the practices that prevailed before the Gulf disruption. Its long-term impact will depend on how demand evolves, how quickly new production capacity comes on stream and whether geopolitical developments reshape available sources of supply.
