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New Delhi: India has protected city gas supplies by curbing deliveries to fertiliser plants, refineries and industrial users as the Middle East conflict disrupts liquefied natural gas (LNG) shipments, while South Asia’s overall LNG demand is now expected to fall by about 6 million tonnes in 2026, consultancy Wood Mackenzie said.

The region’s LNG demand had earlier been projected to grow by 2.7 million tonnes, or 7 per cent, this year. The closure of the Strait of Hormuz and disruption to Qatari and United Arab Emirates supplies have reversed that outlook, forcing governments to ration gas, seek expensive replacement cargoes and absorb mounting fiscal costs, Wood Mackenzie said.

“India fared relatively better by deploying a tiered demand-management strategy that kept city gas distribution unaffected while cutting supply to the fertiliser, refinery, and industrial sectors in March and April,” it said in a report.

Government subsidies helped sustain fertiliser production, with daily urea output rising by 12,000-15,000 tonnes. Monthly production reached record highs of 25.19 lakh tonnes in May and 25.37 lakh tonnes in June, according to the consultancy.

However, India has not escaped the price shock. LNG tender award prices ranged from USD 16.8 to USD 18.8 per million British thermal units (mmBtu) between March and June, before rising to USD 26.4 per mmBtu in September. Demand for LNG tenders remained robust throughout the period, Wood Mackenzie said.

The disruption has hit Pakistan and Bangladesh harder because of their dependence on Gulf supplies. In 2025, Qatar accounted for 99 per cent of Pakistan’s LNG imports and more than 70 per cent of Bangladesh’s, leaving both countries highly exposed to interruptions through the Strait of Hormuz.

Nearly 90 per cent of Qatari and UAE LNG shipments transiting the strait in 2025 were destined for Asia, making the region particularly vulnerable to the supply shock, Wood Mackenzie said.

The resulting surge in spot prices relative to contracted LNG prices contributed to a reduction in gas demand of more than 3 million tonnes in Bangladesh and about 1.5 million tonnes each in India and Pakistan, according to the consultancy.

“The Middle East conflict has exposed the structural vulnerabilities of South Asian LNG markets in stark terms,” said Johnson Quadros, head of gas and LNG research at Wood Mackenzie. “Countries that had diversified their supply sources and established multiple pricing mechanisms came through this crisis in far better shape than those that had not.”

Pakistan has been among the hardest-hit markets, with the Hormuz disruption reducing LNG supplies bound for the country by as much as 0.4 million tonnes per month between March and November 2026. It responded by curtailing demand, switching fuels and releasing previously withheld domestic gas, resulting in more than 2.5 million tonnes of gas demand destruction, Wood Mackenzie said.

Pakistan returned to the spot LNG market in April after a two-year absence, but high prices limited its ability to secure replacement cargoes. It also remains liable for daily floating storage and regasification unit (FSRU) take-or-pay charges regardless of whether LNG cargoes arrive, adding to the financial burden.

Wood Mackenzie has cut its forecast for Pakistan’s LNG demand to 3.7 million tonnes in 2027, from 6.6 million tonnes in 2025. Committed LNG volumes are expected to exceed demand through 2030, while uncontracted volumes are projected to account for more than 90 per cent by the early 2030s.

Bangladesh, meanwhile, has struggled to replace disrupted supplies because of limited scope to increase domestic gas production and a lack of diversified import options. Gas shortages triggered prolonged power outages and greater reliance on coal.

State-owned Petrobangla bought spot LNG cargoes from Gunvor and Vitol for March delivery at USD 23-28 per mmBtu. Between March and June, Bangladesh consistently paid an average of more than USD 18 per mmBtu for spot LNG, putting additional pressure on government subsidies, Wood Mackenzie said.

Governments across South Asia have responded with gas rationing, power cuts, tariff increases and additional budget allocations. But the consultancy warned that such measures defer costs rather than resolve the underlying vulnerabilities, as rising energy bills and disrupted industrial supplies put further pressure on consumers, businesses and public finances.

The duration of the conflict remains a key uncertainty. If disruptions persist, governments could face increasingly difficult choices between energy security, consumer protection and fiscal stability, Wood Mackenzie said.

The crisis also threatens the region’s longer-term gas demand outlook. Wood Mackenzie expects affordable LNG to be essential to support global demand growth of 60 per cent through 2040, with South and Southeast Asia central to that expansion.

“Affordable LNG is essential to drive the 60 per cent demand growth we expect through 2040, and South and Southeast Asian economies are central to that trajectory,” Quadros said.

“The disconnect between today’s supply crisis and tomorrow’s risk of oversupply creates real uncertainty for both buyers and sellers. Buyers who do not act on the lessons of 2026 on diversification, on flexible pricing, on infrastructure resilience and on building trading capabilities risk facing the same vulnerabilities again, in a market that will be even larger and more interconnected.”

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