Global Gas Demand Decline and Fuel Switching

The International Energy Agency (IEA) projects a 0.5% decline in global natural gas demand in 2026, driven by constrained liquefied natural gas (LNG) supplies resulting from the US-Israel war on Iran and the closure of the Strait of Hormuz. Higher LNG prices and concerns over supply access are pushing power generators and industrial users to switch to coal and other fuel sources.

LNG Supply Disruptions and Recovery

The conflict caused a steep 80% drop in LNG exports from Qatar and the United Arab Emirates during March-June 2026 compared to the same period in 2025. However, global LNG supplies are forecast to remain "largely unchanged from 2025" due to increased exports from the US, Canada, Australia, and African LNG projects, alongside swift resumption of shipments by Qatar and the UAE. Despite this, LNG output could stay lower through 2027, as Qatar's Ras Laffan processing terminal sustained damage from the war, limiting its export capacity expansion.

Market Tightness and Strait of Hormuz Reopening

The IEA warns that markets could remain tighter than previously expected over the next two years. LNG traffic through the Strait of Hormuz has been rising again since an interim US-Iran deal to end the war and reopen the strait. The IEA's projections assume the strait will be fully reopened to pre-war shipping levels by the third quarter of 2026, though the timing remains uncertain as some vessels still face occasional attacks.

Price Impact

The Japan Korea Marker (JKM) global LNG index price surged dramatically at the onset of the conflict, more than doubling at its peak. While it has since fallen by about 15% from a month ago, the JKM benchmark remains sharply higher compared to pre-war levels.