SunSirs: IEA Lowers Full-Year Natural Gas Consumption Forecast; Geopolitical Disruptions Reshape Global Gas Price Dynamics

I. Key Industry Data Overview

On July 7, the International Energy Agency (IEA) released its latest market outlook. Driven by disruptions to shipping in the Strait of Hormuz and dampened end-user purchasing appetite caused by surging natural gas prices, global natural gas consumption for 2026 is projected to decline by 0.5% year-on-year—a reduction equivalent to 20 billion cubicometers. The Strait of Hormuz handles approximately 20% of global seaborne liquefied natural gas (LNG) trade; geopolitical conflicts have obstructed shipping routes, directly disrupting the flow of global gas supplies and triggering significant volatility in domestic and international natural gas and liquefied petroleum gas (LPG) prices. Benchmark prices for energy products on July 8 were as follows:

1. LNG benchmark price: 5,354.00 RMB/ton (up 1.06% intraday; down 4.39% from 5,600.00 RMB at the start of the month; prices remain in the mid-to-high range for the year).

2. LPG benchmark price: 5,225.00 RMB/ton (down 0.24% intraday; up 0.14% from the start of the month; prices remain at a mid-to-low level for the year).

II. Global Market Situation: Consumption Constrained by Both Supply Contraction and Weakening Demand

1. Persistent Geopolitical Constraints on Supply

Qatar and the UAE in the Persian Gulf are key global sources of LNG exports; all LNG shipments from these nations must pass through the Strait of Hormuz. During periods of conflict, export volumes dropped significantly, leading to a temporary tightening of global gas supplies. In the first half of the year, spot import prices in Asia surged, sharply increasing procurement costs for various nations. Although shipping through the strait has recently seen a slight recovery, maintenance at Middle Eastern facilities and slowed export paces continue to constrain global supply growth, making it unlikely that total annual LNG deliveries will match the growth rates seen in previous years.

From a long-term perspective, high gas prices are compelling nations to accelerate the diversification of their gas supply sources. While planning for new liquefaction projects in North America and Africa has sped up, the long lead times required to bring new capacity online mean these projects cannot offset the reduction in Middle Eastern supply within the current year. 2. Two core logics behind the contraction of global demand

First, the price-suppression effect has become pronounced. Spot prices for natural gas and LNG have remained persistently high; consequently, the industrial, power generation, and chemical sectors have proactively reduced gas consumption, while the share of alternative energy sources—such as coal, solar, and wind—has risen, directly squeezing the scope for natural gas consumption.

Second, regional demand has diverged and weakened. European inventories remain high, and summer demand for gas-fired power generation has been lackluster; manufacturing margins in South Asia and Southeast Asia are weak, leaving these regions unable to afford high-priced gas imports, resulting in a continued decline in import volumes. While high summer temperatures in Northeast Asia drove a slight increase in output from gas-fired power plants, this was insufficient to offset the overall global drop in demand, ultimately leading to a pattern of negative consumption growth for the year.

3. Dynamics linking domestic upstream supply, demand, and prices

Domestic natural gas supply comprises three main segments: domestically produced pipeline gas, imported pipeline gas, and imported LNG. LNG serves as the core variable for market price fluctuations, with import costs directly determining the ex-works pricing for domestic liquefaction plants and receiving terminals. In the first half of the year, shipping bottlenecks drove up overseas landed costs, causing the domestic LNG benchmark price to surge continuously from May onwards; recently, however, the arrival of overseas cargoes has gradually resumed, leading to a slight easing of costs and a cumulative monthly decline of over 4% in LNG prices during July.

Prices of associated energy feedstocks have moved in tandem: on July 8, international crude oil prices shifted downward, dragging naphtha prices down as well; this slightly eased the cracking costs for liquefied petroleum gas (LPG), causing spot LPG prices to fluctuate within a narrow range. Meanwhile, the benchmark price for thermal coal remained stable, and the substitution effect of coal-fired power generation against gas-fired generation held steady, indirectly capping the upside potential for natural gas prices. (III) Complete transmission chain of domestic price fluctuations

1. Drivers of price increases: Tightened shipping in the Strait of Hormuz → reduced overseas LNG cargoes and rising Asian spot prices → increased domestic landed import costs → liquefaction plants and receiving terminals raising ex-factory prices → rising procurement costs for industrial and chemical enterprises, leading to further contraction in end-user demand;

2. Drivers of price decreases: Geopolitical easing and resumed overseas shipments → increased import supplies and falling landed costs → decline in domestic LNG benchmark prices → slight recovery in downstream industrial procurement willingness, though the demand ceiling remains low during the off-season, limiting the scope for price rebounds;

3. Independent logic for liquefied gas (LPG): LPG possesses characteristics of both residential fuel and chemical feedstock; refinery ex-factory prices are determined by crude oil and naphtha costs. While low crude oil prices provide a floor for LPG, weak operating rates in downstream alkylation and MTBE sectors—combined with a lack of bullish factors on the demand side—keep market prices fluctuating at low levels.

IV. Import and export landscape: Imports recover as shipping normalizes; export volumes remain small

Imports

In the first half of the year, domestic monthly LNG imports fell significantly year-on-year due to the strait blockade; starting in July, Persian Gulf cargoes gradually resumed arrival, increasing import supplies and slowly building up inventories at domestic terminals, thereby easing gas supply shortages. However, with average overseas spot prices for the year remaining higher than in previous years, total import volumes are unlikely to see a substantial rebound, aligning with the broader global trend of weakening consumption.

LPG imports fluctuate in tandem with overseas oil and gas market trends; the inflow of low-priced overseas supplies caps the upside potential for domestic spot prices.

Exports

The scale of domestic natural gas and LPG exports is generally small, primarily directed toward neighboring Southeast Asian nations. Against a backdrop of weak overseas demand, exports play a negligible role in diverting surplus domestic gas, making it difficult to absorb excess supply; market trends are primarily driven by domestic off-season demand and import volumes.

V. Outlook for natural gas and LPG trends in the second half of the year

The pattern of weak global consumption persists, with the navigation status of the Strait of Hormuz serving as the core variable influencing market trends. In the short term, with an increase in overseas cargo arrivals, domestic prices for LNG and liquefied gas are fluctuating at low levels; however, should geopolitical conflicts escalate again or cargo volumes decline, import costs would rebound rapidly, driving a temporary spike in gas prices.

Overall, the 2026 natural gas market faces dual constraints—geopolitical supply contraction and weakening global demand—resulting in a slight decline in annual consumption. While gas prices are experiencing weak, volatile trends in the short term and seasonal demand in the fourth quarter may trigger a temporary recovery, the prevailing loose supply-demand balance is unlikely to reverse, precluding any sustained, one-way price surge over the year.

 

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