The Global Gas Market’s Liquidity Test

The clearest energy lesson I brought home from Gastech in Bangkok was not that the world is running out of natural gas. It was that having gas somewhere in the world is very different from having affordable gas where and when it is needed.

The Iran conflict has subjected the global gas market to its first major liquidity test. Middle Eastern LNG supply fell by approximately 36 million tonnes, yet new production and portfolio flexibility limited the net reduction in global supply to about 5 million tonnes — roughly 1% to 1.5% of the market. Flexible contracts, diversified portfolios and additional LNG carriers allowed cargoes to be redirected to buyers able to secure them.

By one measure, the market worked remarkably well. It absorbed a major regional disruption without producing a corresponding global physical shortage.

But that is only part of the story.

North Asian spot LNG prices climbed to approximately $26 per million British thermal units in September, roughly 150% above February levels. Asian LNG imports were estimated at 20.09 million tonnes for the month — the lowest September volume in eight years. Europe, with greater financial capacity and an urgent need to rebuild storage, was expected to import 7.98 million tonnes in September and potentially more than 10 million tonnes in subsequent months.

Cargoes moved. Prices rose. Demand disappeared.

The global gas market passed its commercial-liquidity test. It did not pass the broader test of energy security.

A market that clears is not necessarily secure

Markets allocate scarce resources to those willing and able to pay the highest price. That is what the LNG market is doing.

The problem is that a market can clear efficiently while leaving countries, industries and consumers without affordable energy. Some buyers secured replacement cargoes. Others reduced consumption, curtailed industrial activity, increased subsidies or shifted to different fuels.

The world did not run out of gas. Too many countries ran out of affordable options.

This distinction matters because energy security is too often measured by aggregate supply. Governments and analysts ask whether enough gas exists globally, whether new liquefaction capacity is being constructed and whether cargoes continue to move.

Those are important questions, but they are incomplete. Energy is not secure merely because it exists. It must also be deliverable through functioning infrastructure, accessible under workable commercial arrangements and affordable to the consumers and industries that depend on it.

A cargo that exists but cannot be afforded offers little practical security.

LNG is becoming more like oil – but it is not oil

The conflict has accelerated LNG’s evolution toward a more flexible, oil-like market while exposing the limits of that comparison.

A decade ago, the loss of this much Middle Eastern LNG would have been considerably more difficult to absorb. Today, portfolio suppliers can draw cargoes from multiple projects. Buyers can negotiate swaps and diversions. Sellers can substitute supply among different facilities. A larger fleet can move LNG between Atlantic and Pacific markets.

Shell cited the addition of approximately 70 to 80 LNG carriers annually as an important source of logistical flexibility. Buyers are diversifying toward North America, Oman, West Africa, Australia and Indonesia, while producers are spreading investment across several supply basins.

This is real progress. The LNG market is no longer defined solely by rigid point-to-point relationships in which a producing project serves a small number of designated buyers under inflexible, multidecade contracts.

But LNG remains less liquid than oil.

Oil benefits from deeper physical and financial trading, more extensive storage, a larger tanker fleet and a wider range of suppliers and transportation routes. Different crude grades are not fully interchangeable, but many can be blended, stored or redirected to appropriately configured refineries.

Oil-importing countries also maintain strategic reserves. Members of the International Energy Agency are required to hold oil stocks equivalent to at least 90 days of net imports. No comparable internationally coordinated reserve system exists for natural gas.

Even the more mature oil market has been strained by the conflict. Middle Eastern producers have expanded ship-to-ship transfers near Oman to keep crude moving. The volume handled through these arrangements reportedly increased from 1.4 million barrels per day in August to 2.5 million barrels per day in September. That workaround has prevented a more serious shortage, but freight costs have exceeded $30 per barrel.

Oil-market resilience is working. It is also extraordinarily expensive.

Natural gas faces additional physical constraints. Pipeline gas is regional. LNG makes gas mobile, but each cargo still depends on functioning liquefaction capacity, a specialized vessel, an accessible shipping route and compatible receiving infrastructure. The importing country also needs storage, pipeline connections, power infrastructure and creditworthy purchasers.

A price signal can redirect available cargos. It cannot manufacture liquefaction capacity, repair damaged infrastructure or reopen a shipping route.

Qatar illustrates the physical limits

Qatar demonstrates the difference between possessing resources and delivering supply.

The country has abundant reserves, capital, technical expertise and established customers. Yet attacks on Ras Laffan have disabled approximately 17% of Qatar’s LNG capacity. Repairs to two LNG trains may take as long as three years. The first North Field East train remains scheduled to begin operating during the first half of 2027, but subsequent trains may be delayed because required equipment cannot move through the effectively closed Strait of Hormuz.

The constraint is not geology or customer demand. It is infrastructure, transportation access and project execution.

QatarEnergy’s participation in the 18-million-tonne-per-year Golden Pass project in Texas reflects how the market is responding. Producers increasingly value supply positions in multiple basins because geographic diversity creates options that even a world-class resource cannot provide during a disruption.

Energy security therefore cannot be measured solely by reserves or announced production capacity. Supply becomes secure only when the infrastructure, transportation network, commercial arrangements and financing required to deliver it are also secure.

The market’s adjustment mechanism was demand destruction

Thailand offers a useful illustration of how physical availability and economic access can diverge.

At Gastech, PTTEP warned that every $3 increase in the LNG price could raise Thai electricity prices by approximately 5%. LNG currently supports roughly 30% of Thailand’s power generation, and that share could reach 70% during the next decade if domestic and regional alternatives do not develop. More than one-quarter of the gas used for electricity is already imported, and approximately half of Thailand’s LNG is purchased on the spot market.

Across Asia, high prices are forcing utilities and industrial consumers to reduce consumption or turn to coal, nuclear generation, domestic gas and renewable power where those alternatives are available. Analysts expect Asian LNG demand to decline between 3% and 10% in 2026, marking a second consecutive annual decline.

That does not mean Asia’s underlying need for energy has disappeared. It means price has destroyed demand.

Demand destruction should not be confused with successful energy adjustment. Behind those numbers are higher electricity bills, government subsidies, curtailed fertilizer and petrochemical production, weakened industrial competitiveness and delayed economic development.

There are also environmental consequences. Replacing LNG with coal may improve immediate fuel availability while increasing emissions. Countries with nuclear power, renewable generation, domestic gas, storage and stronger infrastructure have more options. Those without them face much harder choices.

The same market disruption therefore produces very different outcomes depending on the financial strength and energy diversity of the affected country.

Long-term contracts are returning – but not the old market

Concern over energy security is increasing demand for long-term LNG contracts. That does not necessarily mean the market is returning to the rigid point-to-point structure that defined its early development.

The emerging model is a hybrid.

Buyers want long-term contracts to secure baseline volumes, but they also want destination flexibility, diversion rights and access to several supply sources. Sellers are developing portfolios that allow cargoes to be substituted among projects. Pricing can be linked to multiple benchmarks rather than depending on a single oil-linked formula. Spot purchases, swaps and short-term contracts provide flexibility around the contracted base.

Recent agreements show the direction of travel. Equinor has signed a 15-year agreement with India’s Deepak Fertilizers while developing a geographically diversified supply portfolio. China Gas has entered into a 20-year agreement to purchase 500,000 tonnes annually from Venture Global, bringing its total long-term commitments with the company to 2.5 million tonnes per year.

The Iran conflict is not driving the market back to complete dependence on inflexible bilateral relationships. Nor has it established spot-market purchasing as a sufficient security strategy.

The market is moving toward contractual security combined with commercial flexibility.

Sustainable energy policy rests on three legs

The experience also reinforces why energy policy must balance security, economics and environmental performance.

Neglecting security leaves countries exposed to physical disruption. Neglecting economics produces unaffordable energy, industrial curtailment and demand destruction. Neglecting environmental performance can increase dependence on carbon-intensive fuels and expose countries to another set of volatile commodity markets.

The three objectives are not inherently in conflict. Properly managed, they reinforce one another.

Renewable generation reduces the volume of imported fuel that must be purchased during a crisis. Nuclear power can provide firm generation without direct carbon emissions. Energy efficiency reduces exposure to every marginal increase in fuel prices. Domestic and regional gas can reduce dependence on distant shipping routes. LNG can provide flexibility and support power systems as they integrate variable generation.

Europe’s experience is instructive. The European Central Bank has found that higher gas prices are passing into general inflation more rapidly than before. At the same time, increased renewable generation has reduced the effect of gas prices on electricity prices. In that instance, investment in the energy transition is providing both economic and strategic insulation.

Environmental responsibility should not be abandoned during an energy-security crisis. But neither should reliable capacity be retired before adequate replacements are operating.

A three-legged stool cannot remain standing when policymakers remove one leg in pursuit of the other two.

Three priorities for durable energy security

Governments and industry cannot eliminate geopolitical risk or commodity-price volatility. They can reduce the likelihood that a supply disruption becomes an economic crisis.

First, contract for security while preserving flexibility.

Importing countries should use long-term contracts to secure baseline supply while retaining destination flexibility, diversion rights, portfolio access and a measured spot-market position. Buyers must avoid both excessive dependence on volatile spot markets and a return to inflexible arrangements that prevent cargoes from responding to changing conditions.

Second, finance deliverability — not merely production.

Liquefaction capacity provides little security without vessels, receiving terminals, storage, pipelines, power infrastructure and creditworthy buyers. Development banks, export-credit agencies and private lenders should evaluate the complete delivery chain as an integrated system.

Financing production without financing the infrastructure needed to receive and use the gas creates the appearance of security without its substance.

Third, build portfolios rather than dependencies.

Resilience requires diversity of suppliers, geographic basins, shipping routes, pricing structures and generation sources. Imported LNG should complement rather than automatically displace economic domestic and regional supply.

Thailand and Malaysia recently approved a 35-year production-sharing arrangement for the Malaysia-Thailand Joint Development Area, where existing production is approximately 700 million standard cubic feet per day. Agreements of this kind can turn shared resources into shared security.

No country should become excessively dependent on one fuel, supplier, transportation route or technology.

The test for American LNG

For the United States, the lesson is particularly important.

American LNG strengthens alliances, supports domestic production and provides an alternative to politically coercive suppliers. But its strategic value should not be measured only by the number of tonnes exported or the value of the facilities constructed.

The more consequential test is whether American LNG helps importing countries build resilient and affordable energy systems.

A market that serves emerging economies only when prices are low will not create the same durable relationships as one supported by flexible long-term contracts, diversified supply, reliable receiving infrastructure and credible financing.

The Iran conflict has demonstrated that LNG is becoming more flexible without becoming fully interchangeable with oil. The industry successfully redirected cargoes and absorbed much of the physical loss. But the cost and distribution of that adjustment cannot be ignored.

The market passed its liquidity test because the available gas moved.

It failed the broader security test because many countries could adjust only by paying more, consuming less or retreating from their economic and environmental objectives.

A market is not secure merely because it clears. If it clears by destroying demand, weakening industry and forcing developing economies backward, it has reallocated scarcity rather than solved it.

The next test is not whether LNG can reach the highest bidder. It is whether governments and industry can build an energy system in which reliable supply remains affordable enough to support economic development and sufficiently diverse to sustain environmental progress.

The world did not run out of gas. Too many countries ran out of affordable options.

That is the energy-security challenge the market has not yet solved.

Rick Westerdale has more than 30 years of experience across the federal government as well as in the global energy industry. As a Vice President at Connector, Inc., a boutique government relations, public affairs, and political strategy firm based in Washington, D.C., Rick advises clients on strategy, investment, and policy across healthcare, hydrocarbons, LNG, hydrogen, nuclear, and the broader energy transition.