India prioritises city gas as Hormuz crisis threatens South Asian LNG supplies

Summary

• Regional demand outlook: Wood Mackenzie warned that South Asia’s LNG demand could fall 2–3 million tonnes below pre-crisis projections through the third quarter of 2026. Before the disruption, the consultancy had forecast 2.7 million tonnes of growth, or 7%, for the full year. Source: Wood Mackenzie
• India’s gas allocation: India has faced industrial gas curtailments as suppliers prioritise essential sectors. The country sourced 59% of its 2025 LNG imports from Qatar and the UAE, leaving it exposed to disruptions through the Strait of Hormuz.
• Regional disparities: Pakistan imported almost all its LNG from Qatar in 2025, while Qatar and the UAE together supplied 63% of Bangladesh’s LNG imports. Both countries have faced pressure to replace disrupted cargoes amid elevated spot prices.

NEW DELHI, October 12, 2026 — Disruptions to LNG shipments through the Strait of Hormuz have intensified energy supply pressures across South Asia, forcing import-dependent economies to reconsider gas allocation, industrial consumption and procurement strategies.

Wood Mackenzie warned in March that South Asia’s LNG demand could be 2–3 million tonnes below pre-crisis projections through the third quarter of 2026 under a scenario involving a two-month supply disruption. The consultancy had previously forecast regional demand growth of 2.7 million tonnes, or 7%, for 2026. The forecast shortfall reflects the difficulty of replacing disrupted Gulf supplies at affordable prices. Source: Wood Mackenzie

The Strait of Hormuz is a critical route for global gas trade. According to the International Energy Agency, almost all LNG exports from Qatar and the UAE transit the waterway, and nearly 90% of those exports were destined for Asian markets in 2025. Together, these flows represented almost one-fifth of global LNG trade. Source: IEA

The disruption has increased competition for replacement cargoes and pushed spot LNG prices above $20 per million British thermal units (mmBtu), according to Wood Mackenzie’s March assessment. Higher procurement costs have placed additional pressure on South Asian buyers, particularly those with limited access to alternative supplies or constrained public finances.

South Asia LNG supply and demand exposure

South Asian countries face different levels of LNG supply risk because of their dependence on Gulf exporters. India is managing supply constraints while seeking to protect essential gas consumption. Pakistan is particularly vulnerable because it relies heavily on Qatar for LNG imports, while Bangladesh faces gas rationing and industrial disruptions as it struggles to replace interrupted shipments at affordable prices.

India’s gas allocation: City networks versus industry

India has sought to protect essential gas consumption as international supply disruptions constrain availability. Wood Mackenzie reported that gas aggregators and distribution companies had reduced supplies to industrial customers while prioritising essential sectors.

The country imported approximately 26 million tonnes of LNG in 2025, with Qatar and the UAE accounting for 59% of those volumes. Under the disruption scenario examined by Wood Mackenzie, India could face substantial delivery shortfalls, with limited replacement supplies available from the spot market.

City Gas Distribution (CGD) networks supply compressed natural gas (CNG) for vehicles and piped natural gas (PNG) for households and businesses. Prioritising essential consumption can help limit the impact on households and urban transport, although the extent to which retail tariffs remain stable depends on allocation decisions, procurement costs and government policy.

Industrial users, including refineries, petrochemical producers and manufacturers of glass and ceramics, face a more difficult adjustment. Switching to alternative fuels may be technically challenging or expensive, particularly when oil prices and other energy costs are also elevated. Wood Mackenzie warned that gas shortages could reduce output in energy-intensive industries. Source: Wood Mackenzie

Fertiliser production is another important consideration because natural gas is a key feedstock for urea manufacturing. India recorded urea production of 25.19 lakh tonnes in May 2026 and 25.37 lakh tonnes in June, according to the government’s Press Information Bureau. Production exceeded the respective monthly targets. These figures confirm strong output during those months, but they do not by themselves establish that expanded subsidies or spot LNG purchases were responsible for the performance. Source: Press Information Bureau

Gas-fired power generation may also become less competitive when LNG prices rise sharply. India has substantial installed gas-based generation capacity, but its actual contribution to electricity supply depends on fuel availability, plant efficiency and market prices. If gas-fired plants become uneconomic to operate, additional demand may fall on coal-fired generation, renewables and other available sources.

Pakistan and Bangladesh face different supply constraints

The crisis has exposed the risks of concentrated LNG sourcing across South Asia. Pakistan and Bangladesh have fewer options for replacing disrupted Gulf supplies without paying higher prices or reducing consumption.

Pakistan’s LNG supply vulnerability: Pakistan imported 6.6 million tonnes of LNG in 2025, almost all from Qatar, according to Wood Mackenzie. The country had already cancelled 35 cargoes scheduled for delivery in 2026 amid stagnant demand and increased availability of domestic gas. Further disruption could leave only part of the remaining Qatari supply replaced. Pakistan has responded through demand curtailment, fuel switching and efforts to use domestic gas resources. The precise cost of unused regasification capacity and contractual obligations depends on individual agreements and should not be inferred without contract-specific evidence.

Bangladesh’s costly replacement supplies: Qatar and the UAE supplied 3.6 million tonnes, or 63%, of Bangladesh’s LNG imports in 2025. Wood Mackenzie warned that only about half of those volumes might be replaced under the disruption scenario. Petrobangla introduced four-hour daily gas supply cuts at CNG stations, while textile and ready-made garment manufacturers faced production curtailments. Higher spot procurement costs have added pressure to the country’s energy budget. Source: Wood Mackenzie

The broader Asian market is also adjusting. In July, Wood Mackenzie forecast Asia-Pacific LNG demand at 257 million tonnes in 2026, down from 268 million tonnes in 2025. Elevated spot prices, disrupted Qatari supplies and fuel switching were among the factors behind the weaker outlook. Source: Wood Mackenzie

These developments demonstrate how a disruption concentrated around a major shipping corridor can affect industrial production, energy affordability and government budgets far beyond the Gulf.

Why this matters

• Higher fiscal pressure: Governments may face greater pressure to support fertiliser production, protect vulnerable consumers and manage the effects of higher energy costs. The eventual fiscal impact depends on the measures adopted and how long supply disruptions persist.
• Industrial competitiveness: Gas-intensive industries such as glass, ceramics, chemicals and petrochemicals may face higher operating costs, lower production or the expense of switching fuels. These pressures could affect exports, investment and manufacturing employment.
• Energy security and diversification: The crisis highlights the importance of diversifying LNG suppliers, expanding access to alternative cargoes where feasible, improving domestic gas availability and accelerating renewable energy deployment.
• Electricity system reliability: Reduced gas availability can limit the flexibility of gas-fired power stations during periods of high electricity demand. The consequences for the grid depend on the availability of coal, renewables, hydropower, storage and other generation sources.

FAQs

Q1: How is India responding to the LNG supply disruption?

India has faced industrial gas curtailments while suppliers prioritise essential sectors. The objective is to manage limited supplies and reduce disruption to critical consumption, although the impact on individual consumers and industries depends on allocation policies and available imports.

Q2: Why is Pakistan particularly vulnerable to LNG disruptions?

Pakistan imported almost all its LNG from Qatar in 2025, according to Wood Mackenzie. This concentrated sourcing leaves the country exposed when Qatari deliveries are interrupted. Replacing cargoes can be difficult when spot prices are high and foreign exchange resources are constrained.

Q3: How has the disruption affected Bangladesh?

Qatar and the UAE supplied 63% of Bangladesh’s LNG imports in 2025. Wood Mackenzie reported gas rationing, daily supply cuts at CNG stations and production constraints among textile and garment manufacturers as the country faced difficulties replacing disrupted volumes.

Q4: Did India’s urea production fall during May and June 2026?

No. Government figures show that India produced 25.19 lakh tonnes of urea in May and 25.37 lakh tonnes in June 2026, exceeding the targets for both months. These figures do not establish that production was unaffected by all supply pressures, nor do they prove that expanded subsidies caused the increase.

Q5: Why is the Strait of Hormuz important to LNG markets?

The strait is the main maritime export route for LNG from Qatar and the UAE. The IEA estimates that LNG shipments passing through it accounted for almost one-fifth of global LNG trade in 2025, making disruptions to the route significant for Asian importers.