Hormuz-driven LNG price spikes short-circuit SE Asian power markets

Shipping costs had already increased more than 40% after the first four days of the war, with Atlantic basin rates spiking to more than $61,000/day and Pacific rates up $41,000/day from around $10,000/day on February 27th — the day before the start of the war.

Just a week later, spot LNG charter rates had increased by as much as 600% in the Atlantic Basin, topping off at some $300,000/day, reflecting tight vessel availability and heightened geopolitical risk emanating from the Middle East.

Strong competition among buyers added more upward pressure on prices, while analysts point out that prices are poised for further upside trajectory because freight is baked into delivered LNG prices, the spike in charter rates is directly driving up the cost of supply for buyers already scrambling for cargoes.

The surge in shipping costs is also prompting broader questions about LNG’s role in the energy mix, particularly in maritime transport.

Dr. Tristan Smith, an energy and shipping expert at University College London, told Gas Outlook that LNG price volatility is emphasising that this isn’t a reliably low cost pathway for managing even near-term shipping GHG emission compliance obligations.

“Given the additional capex needed for an LNG dual-fuel ship, and the fuel’s limited decarbonisation potential, many are re-evaluating whether conventional oil-derived fuels and bio/e-fuels are a more obvious pathway – bypassing methane molecules altogether,” he said.

Meanwhile, economists have warned that the biggest risk yet from the Middle East conflict isn’t oil supply disruptions, or even how the higher price of oil has already raised transportation costs worldwide, but something even closer to home – electricity prices.

Asia-Pacific economic contagion

Simply put, disruptions to LNG supply chains serving Asia are a growing concern. Since much of the region’s electricity generation depends heavily on imported gas, prolonged Strait of Hormuz disruptions could force local and regional utilities to replace contracted cargoes with expensive spot market procurement.

Meanwhile, some markets, including the Philippines, Thailand, Vietnam, and Indonesia, could pivot back to coal to make up for lost electricity production. Crucially, this fuel switching undermines decarbonisation targets, pitting short-term energy security against long-term climate goals.

The region is already lagging behind in its climate commitments, with coal still generating roughly half of Southeast Asia’s electricity, underscoring how energy security concerns continue to outweigh decarbonisation goals, according to International Energy Agency (IEA) data.

Asian energy markets are particularly vulnerable to disruptions in the Strait of Hormuz because the region absorbs the overwhelming majority of oil and LNG shipments passing through the volatile chokepoint. Estimates suggest that more than 80% of LNG moving through the Strait of Hormuz goes to Asian markets, highlighting the region’s dependence on Gulf exports.

The Asia-Pacific region accounts for around two-thirds of global LNG demand, while the world’s largest LNG importers are in the region, Japan, China, South Korea, India and Taiwan, (the “Big Five”) — collectively account for around 60% of global LNG trade. Because these five markets dominate spot purchasing and compete for flexible cargoes, their bidding behaviour effectively clears the marginal LNG trade, setting global prices.

Shipping disruption & fallout

A Zero Carbon Analytics report noted that a disruption to shipments from the Gulf, coupled with higher global gas prices along with increased competition for cargoes could force Asian countries to draw on storage, secure replacement supply from other exporters, or bid aggressively in the spot market to maintain power generation.

This bodes well for LNG spot and secondary traders of the super-cooled fuel but could cause inflationary pressures and even political fallout in the region unless hostilities end soon and prices recede.

If LNG prices remain 50% above recent averages, the cost of gas-fired power generation could increase 32-37%, according to analysis by the Institute for Energy and Financial Analysis (IEEFA).

Adding to the strain, Asian spot LNG prices surged from around $10/MMBtu in January to $20–25/MMBtu in early March, effectively doubling within weeks amid the Iran conflict and supply disruptions, according to a Reuters report.

This is already feeding through into electricity costs in the region. The Philippines, for its part, raised power tariffs by ₱0.6427/kWh in March, while warning of further increases as higher fuel costs continue to pass through to consumers.

An Oxford Economics report echoed these fears, noting that logistical disruptions, rather than outright supply losses, may create the most immediate pressure. Even temporary delays to cargo flows from legacy LNG exporter Qatar could force importers to compete for limited alternative supplies, increasing price volatility. Such conditions could strain energy systems in economies where gas-fired generation plays a major role in electricity supply, potentially slowing industrial output and economic growth across the region.

Not only will emerging South Asian economies (Pakistan, Sri Lanka, Bangladesh and even India) also be hit hard, but East Asian economic power houses Japan, China, South Korea and Taiwan are already facing economic headwinds from higher LNG prices.

 As major global LNG importers, they are highly exposed to LNG price spikes, especially as traders take advantage of Europe-to-Asia arbitrage opportunities and hike prices.

While these East Asian countries have a plethora of long-term LNG contracts in place, going forward they remain exposed because most of these contracts are indexed against the price of Brent crude.

When oil spikes, LNG costs rise automatically, creating a direct knock-on effect on regional power prices.

(Writing by Tim Daiss; editing by Sophie Davies)