Middle East Conflict Disrupts Global Energy Markets: Prolonged High Natural Gas Prices to Keep Electricity Costs Elevated for at Least Two Years

The Middle East conflict has caused liquefied natural gas (LNG) prices to surge sharply and is expected to keep them elevated even if a ceasefire is negotiated, due to damage to gas production supply equivalent to 3% of global supply, which will take 3–5 years to restore.

The conflict in the Middle East caused liquefied natural gas (LNG) prices to rise sharply by more than 91%, from USD 10.7 per million BTU on February 27 (before the outbreak of the war) to USD 20.5 per million BTU during late March to early April, driven by supply concerns as the war disrupted LNG transport through the Strait of Hormuz. Although ceasefire negotiations have taken place, key energy infrastructure has been attacked and suffered permanent damage, particularly Qatar’s Ras Laffan gas field, which was hit and forced to cut production by around 12.8 million tons per year, or approximately 17% of the gas production capacity from the Ras Laffan field. The decline in production capacity has reduced LNG supply by the equivalent of 3% of global supply (with Qatar accounting for 19% of global LNG supply), and recovery is expected to take 3–5 years. This is expected to remain a factor keeping LNG prices elevated in the period ahead, as demand-side concerns in Asia and Europe persist over the inability to secure substitute gas supplies in time. However, demand and supply are expected to return to a more balanced level after the next two years, supported by increased production capacity in the United States, which will help partially offset the lost supply from Qatar, while demand is expected to decline as the use of alternative energy increases.

Higher imported natural gas costs are placing upward pressure on electricity generation costs, which are expected to remain elevated at around THB 4.9 per unit by the end of 2026. However, if EGAT debt (the AF charge) is maintained, this would help slow the rise in electricity tariffs, which are therefore expected to increase to around THB 4.0 per unit in 2026–2027.

The conflict in the Middle East is affecting natural gas costs and putting upward pressure on electricity tariffs through two key channels: (1) the increase in the imported liquefied natural gas (LNG) reference price, JKM, which Thailand uses as a benchmark, thereby raising domestic natural gas costs; and (2) disruptions to LNG shipments from Qatar, which have prevented deliveries from being fulfilled under contract, forcing Thailand to procure gas more urgently in the spot market at higher prices.

These two factors are driving up electricity generation costs. Under the baseline scenario, in which shipping through the Strait of Hormuz remains disrupted, energy transport through the Strait of Hormuz and the Yanbu/Fujairah pipeline operates at around 20% of normal volume, and energy infrastructure does not suffer substantially greater damage than at present, LNG prices are expected to remain elevated at USD 22–27 per million BTU through the second quarter of 2026, resulting in an average LNG price in 2026 of USD 17.94 per million BTU.

For Thailand, which relies on imported LNG for around 33% of the gas used in power generation, of which around 7% is sourced from Qatar, procurement pressures and higher LNG prices are pushing up electricity generation costs and could raise electricity tariffs to as high as THB 4.9 per unit by the end of 2026. However, if the government resolves to maintain the Electricity Generating Authority of Thailand’s electricity tariff debt burden (AF) at THB 36 billion, this would help slow the acceleration in electricity tariffs, with the average tariff in 2026–2027 expected to remain elevated at around THB 4.0 per unit.

However, if the situation becomes prolonged, the war escalates more broadly, and energy infrastructure suffers severe damage, LNG prices would surge and remain high throughout 2026. In that case, the average imported LNG price could rise to around USD 36.1 per million BTU, which would push electricity tariffs up to around THB 5.7 per unit. If a decision is made to maintain the AF charge, the average electricity tariff in 2026–2027 would be around THB 4.3 per unit.

The government should adopt a systematic approach to managing rising electricity costs, alongside restructuring power generation toward clean energy sources that can provide a stable and continuous electricity supply.

SCB EIC views that the government should urgently implement systematic measures to address high electricity costs, beginning with short-term solutions to immediate problems alongside long-term energy restructuring. In the short term, the government should manage electricity tariffs and the Ft charge flexibly, adjusting them gradually in line with costs. However, the government may also need to consider the debt burden associated with subsidizing electricity tariffs. If the government resolves to freeze electricity tariffs for the remaining periods of 2026 at the current level of THB 3.88 per unit, EGAT’s outstanding tariff burden (AF) would rise to around THB 70 billion by year-end (up from THB 35.928 billion in April). This would have negative implications for EGAT’s credibility and creditworthiness, as well as for the fiscal position, as the government may need to provide guarantees or inject financial support if LNG prices remain high for a prolonged period.

In addition, the government should develop war-severity scenarios and communicate energy cost information regularly to the public and business sector. Cost pressures on electricity could also be reduced through emergency energy management by increasing electricity purchases and dispatching non-natural-gas power plants by more than 20% above normal generation levels. Such measures could include purchasing hydropower through electricity imports from Laos and domestic sources, as well as procuring additional power from renewable power plants outside existing power purchase agreements, including biomass, biogas, and other renewable energy plants with spare generation capacity, provided that such increases do not exceed transmission system constraints.

At the same time, in the long term, Thailand should accelerate the expansion of clean energy sources that can serve both as generation sources and as continuous power supply (base load), such as solar and wind combined with energy storage systems, while also studying small modular nuclear reactors (SMRs) and increasing domestic reserves of alternative energy. These measures would help reduce dependence on LNG and strengthen Thailand’s energy security on a sustainable basis.

Households and businesses should adapt by focusing on improving electricity-use efficiency and may begin planning for the installation of rooftop solar systems.

The upward trend in electricity tariffs is forcing households and businesses to adapt more quickly. For households, short-term impacts can be mitigated immediately by changing energy-use behavior to reduce consumption, such as setting air conditioner temperatures at 26–27 degrees Celsius, using fans together with air conditioners, switching to LED light bulbs, and choosing energy-efficient appliances with Thailand’s No. 5 energy-efficiency label, all of which can help reduce electricity bills in a tangible way. In the longer term, households may consider planning for rooftop solar installation and upgrading homes to improve energy efficiency, in order to reduce reliance on grid electricity and better cope with the risk of higher electricity costs in the future. For businesses, in the short term, electricity use should be managed more proactively by avoiding peak-hour consumption and improving energy efficiency through energy management systems (EMS). In the longer term, businesses should invest in self-generation, such as rooftop solar, adjust production processes to lower energy use per unit of output, and align these strategies with ESG objectives in order to increase access to green finance.