Asia’s LNG Growth Model Faces a Structural Demand Problem, Experts Say

LNG demand destruction in Asia predates the Iran conflict. Analysts say USD 400 billion in committed gas infrastructure capital faces stranding as renewable costs fall and corporate demand for clean power accelerates.

17 September 2026 – by Wendy Lo

LNG has long been marketed to Asian policymakers and investors as a bridge fuel that is reliable enough to support industrial growth, flexible enough to complement renewables and bankable enough to justify long-term infrastructure. That model is coming under strain as LNG demand has shown signs of weakness, even before the Iran conflict.

According to the Institute for Energy Economics and Financial Analysis (IEEFA), 47 proposed LNG-fired power plants worth USD 52 billion were cancelled, withdrawn or showed no progress over the past five years in the Philippines, Thailand and Vietnam.

Contract cancellations were also emerging in Pakistan and Bangladesh before the Hormuz disruption began. Demand growth had already then started to plateau and the conflict has added another layer of risk by weakening LNG’s claim to energy security.

Sam Reynolds, Research Lead for LNG and Gas Asia at IEEFA, said Asian governments are increasingly treating repeated geopolitical supply shocks as a feature of the market rather than an anomaly. They are now factoring that risk into long-term energy planning.

Asian LNG demand is already weakening in some of the region’s largest markets. Chinese LNG demand has fallen 8% year-to-date to around 63 million tonnes in 2026. That is well below its 2021 peak of 79 million tonnes, according to IEEFA.

Reynolds expects the LNG-to-power pipeline to shrink further. Many projects in Vietnam and the Philippines are unlikely to meet 2030 to 2031 commissioning targets. Only a limited share has secured the gas turbines needed to proceed, he said.

Asia LNG cancelled power capacity far exceeds completed capacity in Philippines and Vietnam since 2021 — Sam Reynolds IEEFA — IEEFA data show that cancelled LNG-fired power capacity has far exceeded completed capacity in several Asian markets since 2021, particularly in the Philippines and Vietnam.
Source: Sam Reynolds, IEEFA

LNG Investment Faces a Stranded-Capital Problem

The financial system has yet to fully price in these risks, according to Arun Kumar, Strategic Advisor for Power Markets and Technology Innovation at Asia Research and Engagement. Investment in regasification infrastructure has continued on assumptions of Asia LNG demand growth. These assumptions may not adequately reflect supply disruption, falling renewable costs or the commercial risks facing new gas projects, experts say.

The International Energy Agency (IEA) has estimated that three-quarters of LNG regasification projects currently under construction may fail to recover their capital under pathways aligned with limiting warming to 1.5°C.

The economics create a further dilemma. At current break-even costs of around USD 8 per mmBtu, LNG would need to fall to roughly USD 3 to USD 4 per mmBtu to compete with coal and renewables in power generation, according to Reynolds. But prices low enough to make gas-fired electricity competitive would also make it harder for regasification terminals and power plants to recover their investment.

Suppliers face less exposure because extraction costs are substantially lower. The greater financial risk sits with importing countries and project developers that have committed capital to infrastructure dependent on sustained LNG demand.

Politics Could Slow the Shift Away From Gas

The transition away from LNG is unlikely to be uniform. Jayant Menon, Visiting Senior Fellow at ISEAS-Yusof Ishak Institute and former Lead Economist at the Asian Development Bank, said LNG can still play a transitional role in some markets, citing Malaysia as one example.

The larger obstacle, he argued, is political economy. The costs of transition are often concentrated among powerful incumbent interests, while the benefits are spread across society. Short electoral cycles can therefore delay decisions whose benefits emerge over much longer periods.

Japan illustrates that tension. Despite 93% of its crude oil transiting Hormuz, the government has not materially changed its energy policy in response to the conflict, according to Richard Katz, Special Correspondent at Weekly Toyo Keizai. Its projected 2050 power mix still includes 54% fossil generation.

Katz also argued that Japan’s regional energy strategy remains heavily tilted toward fossil fuels. Less than 10% of energy deals under its Asia Zero Emissions Community (AZEC) initiative involve solar or wind, he said. This leaves Japan financing infrastructure that may prolong the fossil fuel dependence it says it wants to reduce.

“Japan’s abdication of its potential role in promoting renewables in Asia has created a vacuum which is being filled by China,” Katz said.

The consequences extend beyond Japan. Katz warned that countries with limited access to concessional finance may be pushed toward whatever infrastructure lenders are willing to fund. If that means gas plants, the resulting lock-in can last for decades, he said.