Overseas Research Selection | Morgan Stanley: The Global LNG Market Is Extremely Tight, 20% Supply Disrupted, Prices May Continue to Rise

Ask AI · How the Middle East conflict worsens the global LNG supply crisis

Cailian Press, April 3 (Editor: Xia Junxiong) Morgan Stanley states in a research report that the global liquefied natural gas (LNG) market has entered an extremely tight phase, with about 20% of supply still offline. The “in-transit inventory” departing from Qatar before the conflict has been mostly delivered, which means the spot market in April will be even more strained.

The analyst team led by Devin McDermott pointed out in a report on March 31 that although JKM prices (Asia’s LNG benchmark) have recently fallen slightly, they are still about 85% higher than pre-conflict levels. Even if the situation eases in the short term, due to the large supply gap, the global market still faces urgent inventory replenishment pressure, which will continue to support price trends.

Morgan Stanley states that the global LNG market is expected to face a supply shortfall of about 15 million tons (approximately 4%) by 2026. The bank initially anticipated a “supply surplus” in 2027-2028, but this expectation has been offset by long-term disruptions in Middle Eastern supplies and project delays.

(Morgan Stanley’s forecast of the global LNG supply and demand balance, light blue for the latest forecast, ochre for pre-war forecast)

Major Challenges on the Supply Side

The report points out that the Middle East shock is at the core of this supply crisis. The Iran war has led to the continued blockade of the Strait of Hormuz, which accounts for about 20% of global LNG transportation, with roughly 70% flowing to Asia.

Since March, LNG exports from Qatar and the UAE have been essentially halted. Qatar is one of the world’s largest LNG exporters, accounting for about 19% of global exports, while the UAE accounts for about 1%.

(Distribution map of major LNG export hubs in the Gulf region, orange dots indicate LNG export hubs)

Based on Morgan Stanley analysts’ assumptions, export facilities in Qatar and the UAE will undergo a full shutdown for two months (March to April); two damaged production lines at Ras Laffan (the world’s largest LNG plant, 12.8 mtpa) may face long-term shutdowns of 3 to 5 years (until 2028); the startup of the North Field expansion project is expected to be delayed until July 2027 (originally planned for late 2026).

Ras Laffan plant and North Field gas field both belong to Qatar; mtpa stands for Million Tonnes Per Annum, i.e., million tons per year.

Apart from Qatar, Australia and the U.S. are also major LNG exporters, but analysts say short-term new supply cannot offset the Middle Eastern shortfall.

Due to Tropical Cyclone Narelle hitting Western Australia, over 30 mtpa of capacity has been affected. Chevron’s Wheatstone project (capacity 8.9 mtpa) is expected to be shut down for several weeks for maintenance; the North West Shelf (capacity 12 mtpa) remains offline; Gorgon (capacity 15.6 mtpa) has resumed operations.

In the U.S., the first train of the Golden Pass project (6 mtpa) has officially started production, with the first exports expected in April. Cheniere is reviewing maintenance plans and completing construction of its CCL Stage 3, Train 5, to help ease supply tightness and increase exports to Asia.

Excluding the Middle East, global LNG capacity utilization in March has reached 99%, higher than 97% last year and above the five-year average (91%), with April expected to be around 95%. This indicates that global LNG capacity is operating near full capacity, with little elasticity in supply.

Demand Declines Globally but Not Enough to Offset Supply Shocks

Morgan Stanley analysts cite data showing that March Asian LNG exports decreased by about 7% year-on-year, due to force majeure clauses in contracts, abnormally warm weather (11% below the long-term average), and demand suppression caused by high spot prices. In the short term, demand may further weaken.

In Europe, imports in March fell by 5% year-on-year, with end-of-month inventories at only 28%. To fill the Asian gap, more than 10 ships have diverted from Europe to Asia.

Morgan Stanley warns that European winter-end inventories may be only 64%, significantly below the historical target of 70-80%, risking shortages in the next winter.

It is estimated that global LNG has decreased by about 2 million tons, less than one-third of the supply loss. Additionally, with the weather possibly turning hot in May-June, demand may also rise.

Prices and Market Performance

Morgan Stanley is bullish on LNG prices in 2026, significantly above the forward curve forecasts.

Analysts expect that JKM prices will reach $30 per mmbtu in Q3 2026, rising further to $32.50 per mmbtu in Q4.

(Morgan Stanley’s price forecast)

MMBtu (Million British Thermal Units) is a commonly used energy heat value unit internationally, representing 1 million British thermal units (Btu).

Due to the conflict, the spread between JKM and alternative fuels like coal is widening. Shipping costs surged threefold at the start of the conflict but have since fallen back, still 90% higher than pre-conflict levels.

The conflict has caused shipping routes to change, with U.S. LNG now rerouting around the Cape of Good Hope to Asia.

Morgan Stanley estimates that the global LNG supply shortfall in 2026 will be about 15 million tons, roughly 4% of global supply. The bank had previously expected a surplus in 2027-2028, but now anticipates tightening supplies, mainly due to long-term Middle Eastern outages and delays in the North Field expansion.

In terms of long-term demand, analysts expect that by 2030, global LNG demand will grow from 440 mtpa in 2026 to 549 mtpa, with Asian markets being the main growth driver.

(Cailian Press, Xia Junxiong)