Strait of Hormuz stalemate causes SE Asia LNG rethink

Most commercial traffic in the Strait of Hormuz has been blocked by Iran since early March, just days after the U.S. and Israel began a bombing campaign against the country, causing LNG spot prices to surge to new multi-year highs.

The benchmark Japan-Korea Marker (JKM) for spot prices in Northeast Asia skyrocketed by 94% during March alone.

The closure has choked at least 20% of global LNG supply from the market. This disruption is primarily due to the suspension of exports from Qatar and the United Arab Emirates (UAE), which rely almost exclusively on the Strait to export LNG cargoes.

As of early May, the market remains elevated and volatile. Spot prices for June delivery are currently estimated at $17.80/MMBtu, nearly 70% higher than the pre-crisis January average of around $10.50/MMBtu.

The price surge has also pushed delivered LNG costs above $20/MMBtu for South and Southeast Asian buyers, levels that Wood Mackenzie describes as forcing “industrial rationing.” In Vietnam and the Philippines, these spot prices translate to a projected 32%–37% increase in the total cost of gas-fired power, making it economically uncompetitive against local renewables.

Both countries have already shifted to short-term survival, restarting decommissioned coal plants at maximum capacity to offset the loss of imported fuel, putting their already fragile decarbonisation goals at risk. The impact on LNG markets from the Strait is also causing both countries to reconsider both new and existing LNG import facilities.

Vietnam’s LNG quandary

Ho Chi Minh City-based Vingroup has proposed abandoning its planned 4.8 GW LNG-fired power plant in Haiphong, in highly industrialised northern Vietnam. It would have been Vietnam’s largest LNG power project, Reuters reported. The conglomerate warned that LNG import costs could reach between $3.5 billion and $3.8 billion annually, putting more pressure on Vietnam’s foreign exchange reserves and making the project harder to justify financially.

Notably, this was not an early-stage proposal. Vingroup had already broken ground and had GE Vernova selected as an equipment supplier, yet the economics shifted enough for the company to seek a strategic reversal.

The take-away is that LNG-to-power in Vietnam is no longer being evaluated only as a cleaner substitute for coal, but as a balance-sheet and import-risk problem. Price volatility in LNG markets, as warned by analysts in 2022 after prices for the fuel spiked after Russia invaded Ukraine, can force a pause or rethink.

The possible abandonment of a major Vietnamese LNG project comes only two months after the country reportedly began draughting rule changes to encourage LNG power plant development, including raising guaranteed offtake volumes from at least 65% to at least 75% and extending the guarantee period from 10 to 15 years.

Energy Aspects analyst Ying-Chin told Gas Outlook that Vingroup is considering proposed renewable projects to replace the planned LNG import project.

“This is despite [the fact] that Vingroup has secured gas turbines for the project,” she said. However, she also pointed out that other LNG-to-power projects such as Hiep Phuoc and Quang Trach II are still progressing. LNG imports from Vietnam also picked up in April, likely due to the ramp-up of the 1.6 GW Nhon Trach 3 and 4 LNG-fired combined-cycle gas turbine plants.

Philippine impact

The Philippines is also grappling with the impact of high LNG prices due to Strait of Hormuz complications and is now planning to rein in power bills. Energy Secretary Raphael Lotilla told reporters that the government was looking at measures, including regulating electricity prices and increasing coal-fired generation.

Added to the fallout, SMC Global Power, a dominant player in the Philippines’ energy sector, has signalled a “strategic pause” on its 1.3 GW LNG expansion in Batangas province, some 100 km south of Manila, the country’s capital. SMC cited the inability to secure long-term LNG supply contracts at sustainable prices following the Hormuz blockade. Spot prices in Asia have spiked to levels that would require a 40% increase in pass-through costs to Filipino consumers.

Similar to Vingroup, SMC is reportedly re-evaluating the site for a potential 500 MW battery energy storage system (BESS) to support existing baseload, rather than adding new gas capacity.

This shows how LNG volatility quickly feeds into power affordability and policy intervention. In the Philippines, LNG isn’t just a fuel choice; it affects consumer tariffs, dispatch decisions, and government management of power-market stress.

Consequently, the “gas bridge” is becoming politically fragile. If LNG prices rise and the response is price regulation plus more coal-fired output, the transition logic starts to break down. LNG was supposed to displace coal and provide a cleaner transition pathway, but the crisis reveals that expensive imported gas can push policymakers back toward coal for affordability and system stability.

An Institute for Energy Economics and Financial Analysis (IEEFA) report argues that the Iran-related LNG shock strengthens the economic case for renewables and storage across Asia. IEEFA analysts contend that if LNG prices remain 50% above 2025 averages, gas-fired power costs could rise nearly 40%, while solar costs would rise by only about 3%, even after accounting for higher capital costs.

As such, the most profound takeaway from the developments in both Vietnam and the Philippines is that LNG-to-power isn’t just geopolitically exposed; it can quickly become economically uncompetitive against firmed renewables. Moreover, the longer the Strait of Hormuz is blocked with no shipments or even partial shipments being allowed through, the greater the chance that this dynamic could become permanent.

(Writing by Tim Daiss; editing by Sophie Davies)