The global liquefied natural gas (LNG) market is facing a stark near-term disruption before embarking on a robust long-term growth trajectory, according to the latest annual outlook from the world's largest LNG trader.

Shell PLC (SHEL) has released its LNG Outlook 2026, painting a picture of a market at a crossroads. The report warns that global LNG trade could see a rare halt in growth in 2026, potentially stagnating at 422 million tonnes, matching the 2025 level. This is primarily attributed to the conflict in the Middle East obstructing the vital energy artery of the Strait of Hormuz.

2026: A Potential Year of Stagnation or Contraction

The report details that since the outbreak of the Middle East conflict and the subsequent disruption to transit through the Strait of Hormuz, approximately one-fifth of global monthly LNG supply has been severed. If the strait can resume normal operations by this summer, 2026 trade volumes may hold steady with 2025. However, a prolonged disruption lasting weeks or more could trigger an annual contraction in global supply, a phenomenon not seen in over a decade.

This stands in sharp contrast to pre-conflict expectations, which anticipated a significant sales increase for 2026. The conflict has disrupted this trajectory. While some LNG carriers have recently transited the strait, the situation remains highly fragile, with renewed military exchanges between the US and Iran over the weekend underscoring the precarious peace prospects.

Shell also cautions that even if the strait is confirmed safe, idled LNG facilities would require six to eight weeks to gradually restart production.

Damage to Qatar's Core Facilities Requires Years to Repair

Shell holds interests in Qatar's Ras Laffan complex, a critical pillar of global LNG supply. The complex sustained damage to multiple production units from an Iranian missile strike in March. Qatari authorities have indicated that approximately 17% of its liquefaction capacity will require "several years to repair."

Additionally, Shell-operated Pearl gas-to-liquids facilities in Qatar were also attacked and remain offline. Consequently, Qatar's LNG exports have plummeted, dropping nearly 20 million tonnes year-over-year from January to May.

Conversely, US LNG exports have served as a market stabilizer, increasing by about 10 million tonnes over the same period. Exports to Asia surged from under 1 million tonnes in January to over 4 million tonnes in May, helping to cushion the supply shock.

Regarding the outlook, Shell's assessment appears more optimistic than some peers. While firms like Vitol and the International Energy Agency foresee tight supplies persisting for about two more years, Shell expects growth to resume in 2027, viewing 2026 as a temporary setback, provided the strait reopens.

Price Peaks Below 2022 Levels as Market Resilience is Tested

Despite significant market volatility, LNG prices have not spiraled out of control. The report notes that Asian spot LNG prices peaked above $20 per million British thermal units during the crisis, reaching a high of $21.63/mmBtu, but have since retreated to $15.35/mmBtu, a near four-month low. The European benchmark, the Dutch TTF contract, peaked at $18.33/mmBtu.

Both peaks remain far below the levels seen after the Russia-Ukraine conflict in 2022, when TTF prices soared to $71.55/mmBtu.

Shell's analysis attributes this relative stability to the ongoing commissioning of new liquefaction capacity in North America, improved performance at existing projects, and a temporary slowdown in Asian import growth, which collectively helped offset supply losses from the Middle East and enhanced market resilience. Previously built regasification infrastructure also aided economies in absorbing the shock.

Cederic Cremers, Shell's Integrated Gas & Upstream Director, commented in the report, "This conflict delivered a system-wide shock, with ripple effects across the economy, but the LNG industry has demonstrated its resilience and ability to adapt to changing market conditions."

However, recent signs indicate renewed pressure. Attacks on vessels in the strait area over the past few days have pushed benchmark gas prices higher. The short-term demand-dampening effect of elevated prices is already visible, with Kpler data showing Asian LNG imports for the first half of 2026 at approximately 127.7 million tonnes, down nearly 4% year-over-year. Analysts expect high prices to suppress buying in South Asia, potentially pushing price-sensitive buyers towards alternative gas sources or back to coal and domestic gas.

2050 Demand Nears 700 Million Tonnes, Urgent Investment Required

Despite near-term headwinds, powerful long-term structural drivers remain intact. Shell forecasts that global LNG demand will surge by approximately 65% from 2025's 422 million tonnes to nearly 700 million tonnes per year by 2050.

South and Southeast Asia are expected to account for about 40% of global LNG imports, as these nations actively seek low-carbon alternatives to meet rapidly growing populations and energy needs. In more mature Asian markets like Japan, data centers are emerging as a new engine driving power and gas demand.

Europe's reliance on LNG is also set to continue. Shell notes that as Europe's domestic gas production continues to decline, LNG will remain crucial for energy security and balancing the intermittency of renewable power generation.

Meeting this vast future demand requires significantly more investment than is currently underway. Shell anticipates around 180 million tonnes per year of new LNG supply reaching the market by 2030, improving accessibility and affordability. However, looking further ahead to the 2030s and 2040s, an additional approximately 200 million tonnes per year of new supply beyond currently sanctioned projects will be needed, necessitating massive investment in new LNG export facilities.

Cremers emphasized, "While we need more investment on both the supply and demand infrastructure sides, the long-term outlook remains strong, and LNG will continue to be a stabilizing force in the global energy system."