Zhongjin: Escalation of Iran situation may lead to significant fluctuations in LNG prices. Independent natural gas exploration and production enters a cycle of rising production and prices.

Zhongjin released a research report stating that the blockade of the Strait of Hormuz and the stability of Qatar's LNG supply have a significant impact on LNG spot prices. If Qatar's LNG facilities are shut down for more than 2 months, the Northeast Asian LNG spot prices may rise to over 50 USD/MMBtu. Over the past year, the major concern was the weakening international LNG supply and demand which suppressed the unilateral profitability of domestic independent natural gas exploration and production enterprises. However, the recent sharp increase in LNG spot and oil prices is expected to support China's annual gas contract price for 2026. If production growth is realized as planned, the market may anticipate another period of rising production and prices for independent natural gas exploration and production enterprises in 2026. Zhongjin's main points are as follows: The blockade of the Strait of Hormuz/Qatar's LNG supply stability has a significant impact on LNG spot prices 1) If the Strait of Hormuz is blocked for 2-3 weeks, the corresponding reduction in Middle Eastern LNG will be around 5-6 billion cubic meters. The natural gas reserves in the European Union are sufficient to cope with the short-term supply shortage, and the Northeast Asian LNG spot prices may rise to 15-20 USD/MMBtu. 2) If the Strait of Hormuz is blocked for over a month, the reduction in Middle Eastern LNG may exceed 10 billion cubic meters, and with the approaching season for replenishing reserves, global natural gas supply contradictions may intensify, pushing Northeast Asian LNG spot prices up to 30 USD/MMBtu. 3) If the short-term situation eases, Northeast Asian LNG spot prices will quickly fall back to the 10-11 USD/MMBtu range. In addition, Qatar Energy has announced a halt in LNG production. The duration of the shutdown and the stability of subsequent production facilities operation will also cause significant disturbances to gas prices. If Qatar's LNG facilities are shut down for more than 2 months, the Northeast Asian LNG spot prices may rise to over 50 USD/MMBtu. Domestic market price fluctuations in China may be significantly lower than overseas prices According to market media statistics for 2025, LNG accounts for about 20% of China's natural gas supply structure. Zhongjin believes that fluctuations in LNG spot prices will have relatively limited impact on China's domestic market prices, and the annual gas contract price for 2026 is expected to remain relatively stable compared to the previous year. The market may trade on two types of logic Zhongjin points out that based on the current situation, the short-term natural gas industry chain will mainly trade on two types of logic: 1) Non-Middle East LNG long-term contract arbitrage. During periods of high LNG spot prices, non-Middle Eastern LNG long-term contracts once again have the potential for interregional arbitrage. If LNG spot prices rise to 15-20 USD/MMBtu, the unilateral profit margin for arbitrage may reach 1-2 RMB vs less than 0.5 RMB earlier, benefiting companies holding non-Middle East LNG long-term contracts. 2) Volume-price synergy for domestic independent natural gas exploration and production enterprises. Over the past year, the main concern was the weakening international LNG supply and demand which suppressed the unilateral profitability of domestic independent natural gas exploration and production enterprises. However, the recent sharp increase in LNG spot and oil prices is expected to support China's annual gas contract price for 2026. If production growth is realized as planned, the market may start to anticipate another period of rising production and prices for independent natural gas exploration and production enterprises in 2026. Risk factors Escalating geopolitical turmoil could lead to significant fluctuations in LNG prices.