Slow growth in demand for liquefied natural gas (LNG), combined with a record increase in global export capacity through 2028, will likely push markets into a prolonged period of oversupply, according to the latest Global LNG Outlook from the Institute of Energy Economics and Financial Analysis (IEEFA).
As major importing regions, including Japan, South Korea and Europe, aim to reduce LNG demand through 2030, global LNG suppliers and traders will increasingly rely on growth in emerging markets to offset falling prices. imports elsewhere and absorb a flood of new supply.
However, such rapid growth in LNG demand in emerging economies is not guaranteed, even in an oversupplied market. Countries in South and Southeast Asia, for example, will face different barriers to increased demand, including fiscal and credit challenges, long infrastructure delays and hiring problems, among other obstacles.
The global LNG crisis that followed Russia’s large-scale invasion of Ukraine in 2022 brought these issues to the forefront, prompting many markets to reduce the role of LNG in their development plans and accelerate the development of alternative energy sources.
Critical situation in almost all markets
IEEFA expects Europe’s gas and LNG demand to fall through 2030. Europe’s natural gas demand has fallen 20% since 2021, due to fuel switching, increased nuclear and renewable energy generation, and mitigation measures. energy efficiency.
LNG imports to Japan and South Korea fell by 8% and 5%, respectively, in 2023. National energy and climate plans foresee sharp reductions in the role of LNG in both countries, turning instead to energy nuclear and renewable. Taiwan, on the other hand, aims to reduce nuclear power, which can boost LNG demand.
China regained its position as the world’s largest LNG importer in 2023. However, domestic natural gas production and additional pipeline imports may limit LNG demand growth. Unprecedented increases in renewable energy capacity are limiting the need for LNG in the electricity sector.
In South Asia, fiscal challenges coupled with the inherent volatility of LNG prices may limit rapid demand growth in the near term, and the role of LNG in power generation is likely to remain low.
In Southeast Asia, lengthy development schedules, contract negotiations, and repeated delays of LNG-related infrastructure projects may continue to inhibit demand while strengthening political incentives to pursue alternative energy sources.
“Controlling gas demand is the most effective insurance policy. Geopolitical factors could trigger another energy crisis and expose the volatility and vulnerability of the LNG market to global conflicts. The gas crisis, exacerbated by the large-scale invasion of Ukraine, brought challenges and opportunities to Europe, where despite rising LNG imports, energy security was ultimately maintained thanks to a historic 20% reduction in consumption gas,” says Ana María Jaller-Makarewicz, IEEFA’s leading European energy analyst.
More liquefaction capacity
As the recent LNG crisis compromised demand growth, high prices also sparked a flood of new supply. Overall, IEEFA expects LNG liquefaction projects already under construction to add 193 million metric tons per year (MTPA) through 2028, a 40% increase in just five years, raising total global liquefaction capacity. at 666.5 MTPA.
Most of the supply additions will come from the US and Qatar, likely pushing Australia into third place among global LNG suppliers. Meanwhile, substantial LNG capacity is being built in Russia, Canada and African countries.
In recent years, global LNG traders (including, for example, Shell, TotalEnergies and many others) have contracted to purchase the majority of LNG volumes from new export facilities, with the aim of reselling the cargoes to buyers from all over the world.
“If rapid and sustained demand growth does not materialize, LNG suppliers and traders, particularly those with higher costs and significant uncontracted supplies, will likely face a prolonged period of low prices and poor profits,” says Clark Williams. Derry, IEEFA analyst.
The European case
European gas demand is expected to fall by 11% between 2023 and 2030, while LNG imports are forecast to peak in 2025. Europe imported a record amount of LNG in 2022 to replace lost gas supplies by Russian gas pipeline, but in the last two years, overall gas demand has fallen 20% to its lowest level in a decade.
LNG accounted for 37% of Europe’s total gas demand in 2023, up from 34% in 2022 and 19% in 2021. Europe imported LNG mainly from the US (46%), Qatar (12.1% ), Russia (11.7%) and Algeria (9.5%).
Gas prices in Europe have stabilized amid declining demand and high storage levels. Natural gas prices in Europe have retreated from 2022 highs due to mild winters, weak demand, increased hydro and nuclear generation, and strong renewables.
The current buildout of LNG infrastructure in Europe is likely to result in significant overcapacity and could cause utilization rates to fall for the rest of the decade.
European Union member states have agreed to continue reducing gas demand to reinforce the security of energy supply and contain price volatility.
