The escalating Middle East conflict is beginning to hit liquefied natural gas (LNG) markets with force, driving sharp price increases and raising the risk of demand strain across Asia’s import-dependent economies.
With the Strait of Hormuz effectively closed and attacks spreading across key regional chokepoints, the disruption to energy flows is tightening global supply and intensifying competition for cargoes.
The impact is already being felt in pricing, with Asian spot LNG rising by more than 50% in early March, according to the Institute for Energy Economics and Financial Analysis.
The scale of the shock has been compounded by damage to critical infrastructure. Strikes on Iran’s South Pars gas field and Qatar’s Ras Laffan complex on 18 March have removed additional supply from the market, with repairs expected to take several years.
As Kenneth B. Medlock III, Director of the Baker Institute Center for Energy Studies, said, “This is literally a punch in the face, particularly for Asian buyers.”
Read more:
Thailand offers a clear example of how quickly these pressures are feeding through to end markets. The country relies on gas for 66% of its power generation, with LNG accounting for around 27% of supply. Around 28% of its cargoes typically transit the Persian Gulf.
According to newly released IEEFA commentary, the cost of sourcing a spot LNG cargo for Thailand has risen from around $11 to $23.50 per million British thermal units. Combined with a 5.3% depreciation of the Thai baht, this has pushed the local currency cost of imports up by approximately 125% in March alone.
The increase is now feeding into the power sector. Thailand’s Energy Regulatory Commission is considering tariff adjustments as it balances consumer affordability with the financial position of state-owned utilities, including Electricity Generating Authority of Thailand and PTT Public Company Limited, both of which carry outstanding debt from previous energy market disruptions.
IEEFA figures suggest that EGAT still has an unpaid debt of around $1.1bn resulting from the 2021 to 2023 energy crisis, while PTT holds nearly $400m in outstanding debt.
However, the scope for passing through higher costs remains limited. Thailand’s economic recovery has been uneven, with structural pressures and weaker export performance weighing on industrial activity.
Sustained high LNG prices could begin to suppress demand, particularly if utilities accelerate a shift towards lower-cost alternatives.
Short-term measures are already being put in place. Authorities have restarted coal-fired capacity and are seeking to increase hydroelectric output to reduce exposure to volatile LNG markets. At the same time, utilisation of gas-fired power plants has declined, reflecting both weaker demand and rising fuel costs.
Around 5 to 10% of the country’s LNG comes from the Middle East. Thai energy government officials said today that the country is actively seeking additional LNG supplies from Malaysia.
According to Reuters, discussions are underway with Petronas, though a spokesperson clarified that Thailand’s state-controlled energy firm PTT PCL handles supply procurement.
