As shipping grinds to a halt through the Strait of Hormuz and Middle Eastern LNG facilities lie idle, Australia has found itself with leverage few developed nations possess in a global energy emergency. Some 20% of global LNG supply is offline as the U.S.-Israeli war on Iran has shut QatarEnergy LNG facilities, disrupting energy supplies from the Middle East. The crisis has turned Australia's gas reserves into a critical asset in negotiations between Japan and China, both scrambling to secure supplies in a suddenly hostile market.
Japan's industry minister Ryosei Akazawa on Saturday asked Australia, Japan's biggest supplier of liquefied natural gas, to boost output in light of the Middle East crisis. The appeal carries obvious strategic weight. Australia supplies about 40% of Japan's LNG imports. With Japan relying on the Middle East for around 11% of its LNG imports, with 6% shipped via the Strait of Hormuz, which is effectively closed due to the U.S.-Israeli war on Iran, Tokyo's vulnerability is acute.
China too faces supply pressure, though its position differs. China's diversification across Russian and Central Asian pipeline gas, domestic shale production, and a broad supply portfolio provides meaningful structural flexibility. Nonetheless, the benchmark price reflecting LNG delivered to Northeast Asia was assessed on March 3 at $25.39/MMBtu, up from $10.70/MMBtu on Feb. 27, creating economic incentives for both nations to negotiate aggressively for stable supplies.
The Albanese government enters these talks positioned to impose conditions that would have been politically difficult in normal circumstances. Australia has the Domestic Gas Reservation Mechanism, which allows the government to trigger export controls in the event of a domestic shortfall. It has never been triggered and it has a lead-in time, but it is possible. Additionally, Australia imposes a price cap of $12 per gigajoule, with good-faith negotiation rules and transparency obligations on producers.
Yet the government's actual bargaining power is more complex than it appears. Constraining LNG exports is unlikely to damage the energy security of Asian consumers. An unprecedented increase in LNG capacity in the coming years is expected to create an enormous supply glut in the late 2020s, which would last until at least 2040 according to the International Energy Agency. In addition, Japanese companies resell vast volumes of Australian LNG to other countries and could reduce their LNG purchases from Australia by a third without impacting Japan's energy security.
The timeline matters enormously. Realistic supplementary supply from all alternative sources totals under 2 million tonnes against a 5.8 million tonne monthly shortfall. This acute shortage window gives Canberra genuine leverage, but it could take months to return to normal deliveries, Qatari Energy Minister Saad al-Kaabi said last week. The duration will determine whether price caps and export restrictions remain temporary crisis measures or harden into permanent policy.
Australia faces a triangular policy challenge. It must signal commitment to regional allies in genuine distress, manage domestic gas users clamouring for protection against export-driven price spikes, and navigate climate commitments that cast doubt on the long-term viability of gas expansion. The government's response will reveal whether it sees this crisis as a temporary negotiating opportunity or evidence that Australia's gas market requires structural reform to align export and domestic interests.