New Delhi: India has managed to protect city gas supplies despite disruptions to liquefied natural gas (LNG) imports caused by the Middle East conflict, largely by restricting supplies to fertiliser plants, refineries and industrial consumers, according to energy consultancy Wood Mackenzie.
However, the crisis has sharply weakened South Asia's LNG demand outlook, with regional consumption now expected to decline by around 6 million tonnes in 2026, against an earlier projection of 2.7 million tonnes, or 7 percent, growth.
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The closure of the Strait of Hormuz and disruptions to LNG shipments from Qatar and the United Arab Emirates (UAE) have forced South Asian countries to ration gas, purchase costly replacement cargoes and increase government spending to cushion the impact.
"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," Wood Mackenzie said in its report.
India's calibrated approach helped maintain supplies to city gas distribution networks while diverting scarce gas away from certain industrial consumers.
Government subsidies also supported fertiliser production, with daily urea output increasing by 12,000-15,000 tonnes. Monthly production touched record levels of 25.19 lakh tonnes in May and 25.37 lakh tonnes in June.
However, India remains vulnerable to the sharp increase in international LNG prices.
LNG tender award prices ranged between USD 16.8 and USD 18.8 per million British thermal units (mmBtu) during March-June before surging to USD 26.4 per mmBtu in September. Despite the escalation, demand for LNG tenders remained strong.
Wood Mackenzie estimated that the widening gap between spot and contracted LNG prices contributed to a reduction in gas demand of approximately 1.5 million tonnes in India.
The supply crisis has been more severe in Pakistan and Bangladesh because of their overwhelming dependence on LNG imports from Qatar.
In 2025, Qatar supplied 99 percent of Pakistan's LNG imports and more than 70 percent of Bangladesh's requirements, leaving both countries highly exposed to disruptions in the Strait of Hormuz.
Nearly 90 percent of LNG shipments from Qatar and the UAE passing through the strait in 2025 were destined for Asian markets.
"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."
The consultancy estimated that elevated spot prices contributed to gas demand reductions of more than 3 million tonnes in Bangladesh and approximately 1.5 million tonnes each in India and Pakistan.
Pakistan has emerged as one of the worst-affected markets, with disruptions reducing LNG supplies destined for the country by as much as 0.4 million tonnes per month between March and November 2026.
The country responded by restricting consumption, switching to alternative fuels and releasing previously withheld domestic gas supplies. Wood Mackenzie estimated that these measures resulted in more than 2.5 million tonnes of gas demand destruction.
Pakistan returned to the spot LNG market in April after a two-year absence, but elevated prices constrained its ability to secure replacement cargoes.
Compounding the pressure, the country continues to incur daily floating storage and regasification unit (FSRU) take-or-pay charges even when LNG cargoes do not arrive.
Wood Mackenzie has consequently lowered its forecast for Pakistan's LNG demand to 3.7 million tonnes in 2027, compared with 6.6 million tonnes in 2025.
Committed LNG volumes are expected to exceed domestic demand through 2030, while uncontracted volumes are projected to account for more than 90 percent by the early 2030s.
Bangladesh has struggled to replace disrupted LNG imports because of limited domestic gas production capacity and insufficient diversification of import sources.
The resulting shortages have triggered prolonged power outages and increased dependence on coal-fired generation.
State-owned Petrobangla purchased spot LNG cargoes from Gunvor and Vitol for March delivery at prices ranging from USD 23 to USD 28 per mmBtu.
Between March and June, Bangladesh paid average spot LNG prices exceeding USD 18 per mmBtu, adding substantially to the government's subsidy burden.
Across South Asia, governments have resorted to gas rationing, electricity cuts, tariff increases and additional budgetary support to manage the crisis.
However, Wood Mackenzie warned that these interventions largely postpone financial pressures rather than address the structural weaknesses in regional energy markets.
The duration of the Middle East conflict remains a major uncertainty for LNG-importing economies.
Prolonged disruptions could force governments to make increasingly difficult trade-offs between maintaining energy supplies, protecting consumers and controlling fiscal deficits.
The crisis also threatens longer-term LNG demand growth in South and Southeast Asia, which Wood Mackenzie considers crucial to the expansion of the global gas market.
The consultancy expects affordable LNG to support a 60 percent increase in global demand through 2040.
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"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."
The findings underline a critical challenge for South Asian economies: while India's targeted supply restrictions have helped protect priority consumers, the wider crisis has exposed the risks of dependence on a narrow group of LNG suppliers and volatile international spot markets.
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