Analysis: The longer-term impacts of Middle Eastern conflict for LNG markets are starting to become clear, and the ramifications for local suppliers could be significant.
Analysis: The longer-term impacts of Middle Eastern conflict for LNG markets are starting to become clear, and the ramifications for local suppliers could be significant.
The vast majority of Western Australian LNG supply is tied up in long-term supply contracts, leaving it immune from exposure to fluctuating spot price markets.
That matters on multiple fronts.
It offers stability of supply and pricing to LNG customers – particularly those in Japan, which have always preferred long contracts over spot buying.
LNG is critical to the electricity mix in Japan, which is weaning off oil-fired generation as it navigates the energy transition.
Its policymakers and electricity generators need to know the supply will come in, and long-term agreements give that security.
LNG producers and the joint ventures that own WA’s assets get the guarantee of long-term custom, and the contracts help secure the debt finance required to get their multi-billion-dollar assets online.
For them, long-term contracts provide protection when the price falls but can limit upside exposure when prices rise.
The level of limitation depends on the strategy of the LNG producer, with some able to partly capitalise on immediate spot price movements.
Woodside Energy, for example, reported late in 2025 that more than 75 per cent of its LNG volumes were contracted – a mix which leaves it with some spot access.
Right now, spot prices are on the rise.
Reuters reported a 68 per cent increase in Asian LNG spot market prices for April delivery this week, to US$25.39 per million British thermal units – the market’s first foray above US$25/MMBtu in three years.
The price driver is blatant.
As missiles launched and drones hovered amid escalating conflict in Iran and the surrounding region this week, state-owned OmanEnergy moved to suspend LNG production.
Oman supplies 20 per cent of the world’s LNG, and an estimated 82 per cent of its sales are into the Asian market.
By executing a force majeure, as reported by Bloomberg, OmanEnergy has been able to free itself temporarily from its contractual obligations because of the extraordinary circumstances created by the conflict.
The Strait of Hormuz – a critical sea channel for global fuel supply which runs between Oman and Iran – has been deemed unsafe.
How long that will be the case, is anyone’s guess.
Research and consultancy firm Wood Mackenzie has estimated the Middle East conflict could disrupt 200 million tonnes per annum of forecast LNG demand growth.
WoodMac analysts believe LNG will remain critical to Asian energy needs with limited real alternatives.
Where that LNG is sourced has become a point of contention.
In the most recent edition of the Business News magazine, Japan’s number one electricity generator, JERA, revealed its plans to diversify away from Australian supply from the middle of next decade when the existing contracts run out.
JERA Australia chief executive Gaku Takagi said Australia currently accounted for around 40 per cent of the company’s energy supply – a figure deemed too high.
“Australia is a very, very reliable country, but too much heavy reliance on one country is dangerous,” he said.
JERA has set its sights on two other markets – the United States and Qatar – as it plans to lessen its reliance on Australian supply when the existing long-term contracts expire in the 2030s.
“If we can purchase from all three, it is very good for our energy security,” Mr Takagi said.
Japan’s historic love of Australian LNG has not dissipated, but concerns over price, a lack of new supply in the pipeline, and regulatory conditions have led it to look elsewhere.
The Qatar shutdown speaks to the importance and risk of diversification strategy for LNG buyers and highlights the stability and safety of Australian LNG.
“Assuming no significant damage to existing projects in Qatar and the UAE, the amplified risks associated with these volumes will, in time, dissipate," WoodMac vice chairman of energy Gavin Thompson said.
“But the crisis will drive home the importance of supply diversification.
“The raft of US pre- [final investment decision] projects – almost 100 Mtpa currently – come without a single geographic point-of-failure risk.”
Is it time for Browse?
Unlike in the US, one of JERA’s major concerns in the Australian jurisdiction is the new project supply pipeline.
As existing Australian gasfields deplete, it is not immediately clear where new gas supply will come from.
Woodside’s contentious approvals for an extension to the life of the Karratha gas plant last year will allow the North West Shelf joint venture to run that facility as far into the future of 2070 – well after the existing gas fields supplying it run dry.
But the gas plant is envisaged as a third-party processing point for the unapproved, undeveloped $30 billion Browse gas project.
It is the nation’s largest untapped resource, and probably the most controversial.
In February, acting Woodside chief executive Liz Westcott told an investor call that there were three key things which needed to happen before progress could be made at Browse.
“We need to ensure we have an investable project and that the concept continues to be refined to enable that,” she said.
“We need to have commercial agreements in place between the Browse joint venture and the North West Shelf joint venture, which continue to be worked.
“And we need environmental approvals.
“The Browse project is very committed to progressing each of those work streams, and that will then enable work to progress, and we can see whether the Karratha gas plant will be the solution for Browse.”
Woodside’s plan to tap Browse through the Karratha gas plant was first submitted to Commonwealth regulators in October 2018.
As of March 2026, it remains unapproved.
WoodMac said the situation in Oman could spur activity on the long-stalled project.
“US supply is not risk-free, not least from domestic energy policy and cannot be the only solution,” WoodMac’s research note said.
“Wood Mackenzie analysis indicates that pre-FID projects in Canada, Mozambique and Argentina will look to capitalise on the uncertainty, while projects that have slipped on timeline, such as Abadi in Indonesia and Browse in Australia, could gain fresh impetus.”
Woodside shares are trading above $30 per share for the first time since March 2024.
In the meantime, all eyes will be on the Middle East.
Short term solutions including coal could experience a short-term demand bump from Asian markets, according to WoodMac, but the market’s long-term needs will not dissipate.
“Fundamentally … Asia needs more energy, while the region's rising emissions will need to be addressed," Mr Thompson said.
“With limited alternative options, we maintain our long-held view that LNG remains central to meeting future Asian energy demand.”
