LNG buyers press Qatar, UAE for price cuts after 42% JKM surge

The U.S.-Iran war has eroded Qatar and the UAE's reputation as reliable LNG suppliers, giving buyers leverage to demand lower prices and stronger supply guarantees in contract negotiations, according to buyers, traders and industry executives.

"Anyone entering into new contracts in the Gulf region will also have to take into account potential insurance costs, which are set to increase," Nicola Monti, chief executive of Italy's Edison, said. Edison has a long-term contract for 6.4 billion cubic meters of Qatari gas a year — about 10 percent of Italy's annual demand — and has had deliveries cancelled from April until early September under force majeure.

Pre-war long-term LNG contracts from Qatar and the UAE were typically priced at 12.6 percent to 12.7 percent of the Brent crude price, but some deals signed since the conflict began have been concluded closer to 12.3 percent, one industry source said. The Platts Japan Korea Marker, the benchmark for spot LNG cargoes delivered to Asia, has surged to $21.35 per million British thermal units from about $15 at the start of May, after briefly touching $25, its highest since December 2022. Brent crude has risen to more than $93 a barrel from less than $72 before the war.

The shift in bargaining power carries billions of dollars in implications. Qatar and the UAE account for about one-fifth of global LNG export capacity, all of which depends on the Strait of Hormuz. With Iranian strikes having damaged Ras Laffan LNG Trains 4 and 6 — sidelining about 12.8 million tonnes per year of capacity for three to five years — and only 26 LNG cargoes having left the Gulf since Feb. 28 compared with the usual 90 to 100 per month, buyers are seeking alternative supply arrangements that could reshape long-term contracting dynamics. The U.S. has spent $37.5 billion on the war so far, Defense Secretary Pete Hegseth estimated.

Asian Buyers Seek Guarantees as Supply Diversification Accelerates

Six Asia-based traders said future talks would focus on reducing prices but also raising the security and diversification of supply. Buyers want Qatar and the UAE to provide guarantees of replacement cargoes if exports through Hormuz are disrupted — for example from Qatar's Golden Pass LNG terminal in the United States. India, which sourced almost 60 percent of its LNG imports from the UAE and Qatar before the war, has shifted to shorter-term procurement, with tenders now seeking cargoes 15 to 20 days forward versus more than 25 days previously, according to S&P Global. Asian buyers accounted for nearly 90 percent of LNG shipments that transited the strait last year.

Global LNG Growth Outlook Dims

Before the war, global LNG supply was projected to grow about 11 percent year-on-year in 2026. The lost Qatar and UAE capacity offsets nearly all of that expected growth, with S&P Global now estimating just 1 percent year-on-year expansion. European gas storage is less than 54 percent full compared with 64 percent at the same point last year, while the Dutch natural gas benchmark briefly rose above 60 euros a megawatt hour. Pakistan's LNG imports have dropped 75 percent, South Korea's are down about 10 percent and China's have fallen 8 percent, with gas-to-coal switching underway in all three markets. South Korean regulators have removed caps on coal-fired power generation to allow for more switching away from natural gas.

The disruption extends beyond the Strait of Hormuz. Iran-backed Houthi rebels in Yemen have threatened to target Saudi shipping in the Red Sea, putting another trade chokepoint — the Bab el-Mandeb strait — at risk. That waterway normally handles about 7 percent of global oil output.

If the Strait of Hormuz blockade continues, global LNG trade might contract for both 2026 and 2027, which would be the first contraction in a decade of strong growth, Shell has suggested. Buyers are increasingly looking to diversify away from Qatar and the UAE, with U.S. Gulf Coast LNG projects emerging as alternative suppliers. U.S. LNG exports are projected to reach 120 million tonnes per year in 2026, with annual export revenues exceeding $60 billion. "For the next wave of energy contracting, we might expect security of supply to jump right to the top of buyers' and policymakers' concerns," James Taverner, executive director of global gas and LNG research at S&P Global, said.

This article is for informational purposes only and does not constitute investment advice.