New Delhi: The global natural gas market outlook has been significantly altered by the conflict in the Middle East, according to the International Energy Agency’s latest quarterly gas market report, with a major supply shock disrupting market fundamentals and pushing back an expected wave of new LNG supply.
The disruption to shipping through the Strait of Hormuz since the start of March has created unprecedented uncertainty, removing close to 20% of global LNG supply from the market and triggering sharp price increases across key importing regions. During a period of intense volatility in March, natural gas prices in Asia and Europe rose to their highest levels since January 2023, contributing to a contraction in natural gas demand in key LNG importing markets.
The crisis has reversed a trend of market rebalancing observed during the 2025/26 heating season, when strong growth in LNG supply – supported by new liquefaction capacity, particularly in North America – helped ease prices. Global LNG trade increased by 12% year-on-year in the October-to-February period, while benchmark prices in Europe and Asia declined by around 25% over the same five-month period.
Despite this, cold weather events, including major winter storms in North America, Europe and East Asia, led to strong spikes in gas demand, underlining the continued importance of gas supply flexibility for energy security, including in systems with rising shares of weather-dependent renewable generation.
Market conditions shifted abruptly in March as the Middle East conflict resulted in the de facto closure of the Strait of Hormuz to LNG cargoes. Global LNG production declined by 8% year-on-year, with a sharp drop in exports from Qatar and the United Arab Emirates only partially offset by higher output from other regions. As the disruptions began to spread through global supply chains, LNG deliveries also fell, with a more pronounced decline observed in April.
Natural gas demand has weakened in key importing markets in response to higher prices, milder weather and policy measures aimed at reducing gas consumption. In Europe, natural gas demand declined by around 4% year-on-year in March, largely driven by stronger renewable electricity generation. Several Asian countries are implementing fuel-switching and demand-side measures to limit gas use amid the supply crisis.
Beyond the immediate disruption, the crisis is expected to have implications for the medium-term outlook. Damage to LNG liquefaction infrastructure in Qatar is set to reduce projected supply growth and delay the impact of the anticipated global LNG expansion wave by at least two years. The combined effect of short-term supply losses and slower capacity growth could result in a cumulative loss of around 120 billion cubic metres of LNG supply between 2026 and 2030. While new liquefaction projects in other regions are expected to offset these losses over time, the impact will prolong tight markets through 2026 and 2027.
The report highlights the importance of strengthening global gas supply security through continued adequate investment across the LNG value chain and enhanced international cooperation between producers and consumers. It also notes the advantages that a diversified portfolio of long-term contracts can bring for gas importers in terms of mitigating price volatility in periods of disruption.
