India, China to see LNG demand rebound once Middle East supply crunch eases, executives say at Gastech conference

India and China’s liquefied natural gas (LNG) demand is expected to rebound once the Middle East supply crunch eases and prices fall, a Reuters report said, citing industry executives, as the US-Iran war drives Asian buyers towards cheaper alternatives like coal and oil.

The disruption has cut off much of the LNG supply from Qatar and the United Arab Emirates through the Strait of Hormuz, through which around a fifth of global LNG supplies previously moved. The resulting squeeze has sent Asian spot LNG prices close to $30 per million British thermal units (MMBtu), from around $10 per MMBtu before the war.

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Reuters reported the developments from the Gastech conference in Bangkok, where executives from India's GAIL and China's PetroChina said the current demand slowdown was likely to be temporary.

India’s LNG demand hit by high prices

India has been particularly affected by the price surge because several industries can switch to other fuels when natural gas becomes too expensive.

"The prices have hit through the roof ... and that is definitely impacting the demand insofar as India is concerned because there are a lot of sectors which are price sensitive," GAIL Chairman Deepak Gupta said at the conference, as per the report.

Gupta said industries were switching to other fuels when gas was no longer economically viable. GAIL, India's largest natural gas distributor by market share, initially had to restrict gas consumption but has since restored supplies to about 90-95% by sourcing LNG from alternative markets.

GAIL and PetroChina have both deployed trading teams to find replacement cargoes after supplies from Qatar and the UAE were disrupted by the conflict.

LNG prices and supply outlook

The supply disruption has also affected the broader global LNG market. Shell's President for Integrated Gas Cederic Cremers said the world had lost about 36 million tonnes of LNG from the Middle East so far this year, Reuters reported.

With Asian buyers competing with Europe for limited cargoes ahead of winter, spot prices have risen sharply. However, industry executives expect the pressure to ease as new LNG production comes online over the next few years.

Gupta said around 150 million to 200 million tonnes of additional LNG capacity could come online over the next four to five years, potentially bringing prices down and supporting demand.

Also Read: India buys its most expensive LNG in years as war upends market

He expects power generators and industries in India to increase gas consumption again as prices normalise, citing gas's relatively cleaner profile compared with other fossil fuels.

China LNG demand seen recovering

China is also seeing weaker LNG demand as high prices make the fuel less attractive for power generation.

PetroChina International CEO Luo Yizhou said Chinese demand had been temporarily suppressed by high LNG prices rather than structurally destroyed, according to Reuters.

Luo expects demand from gas-fired power plants to recover when LNG prices return to around $7-$9 per MMBtu. He pointed to continued growth in China's electricity consumption despite the decline in LNG imports.

"I don't think it will kill the demand in China," Luo said, according to Reuters.

Both GAIL and PetroChina expect the current reduction in LNG demand in India and China to reverse once the Middle East supply disruption is resolved and prices return to more normal levels.