Slow growth in demand for liquefied natural gas (LNG) combined with a significant rise in global export capacity until 2028 is poised to create an extended period of oversupply in the market.
That is the view of the most recent Global LNG Outlook by the Institute for Energy Economics and Financial Analysis (IEEFA).
A surge of new export projects, notably in the US, is expected to boost global LNG export capacity by around 40% by 2028.
Despite a pause in authorisations for new export projects by the Department of Energy, US LNG export capacity is forecasted to grow by 80% during the same period.
According to Clark Williams-Derry, Finance Analyst and co-author of the report, if rapid demand growth is not realised, LNG producers and traders will likely face an extended period of low prices and slim profits.
“The spectre of a global LNG glut clouds the prospects for new export projects in North America and around the world,” he added.
The global LNG crisis triggered by Russia’s full-scale invasion of Ukraine in 2022 accelerated the reassessment of LNG’s role in various markets, prompting a shift towards alternative energy sources.
IEEFA anticipates a decline in Europe’s gas and LNG demand until 2030, with a 20% decrease in natural gas demand from 2021. This decline is attributed to fuel switching, increased nuclear and renewables generation, and energy efficiency measures.
The trend in Europe is continuing, with a quarterly energy demand report from the European Commission showing that in Q2 2023, gas consumption fell 8% year-on-year.
LNG imports to Japan and South Korea dropped by 8% and 5% respectively in 2023. Both countries are reducing the role of LNG in their energy plans, favouring nuclear and renewable energy sources. Taiwan, however, plans to decrease its reliance on nuclear power, potentially increasing LNG demand.
China became the world’s largest LNG importer again in 2023. Yet, domestic gas production and additional pipeline imports may limit LNG demand growth, as renewables capacity expansion reduces the need for LNG in the power sector.
In South Asia, fiscal challenges and LNG price volatility may constrain immediate demand growth, keeping LNG’s role in power generation low.
In Southeast Asia, lengthy development timelines, contract negotiations, and project delays for LNG infrastructure may hamper demand while encouraging the pursuit of alternative energy sources for political reasons.
European LNG
Having imposed measures such as REPowerEU to reduce the impact of weaning itself from Russian gas, the EU has not only maximised LNG imports via its existing facilities, but has also managed to build seven new regasification terminals since Russia invaded in February 2022.
Three have been built in Germany, one in the Netherlands, one in Finland, one in Italy and another in France. A facility in France has also been expanded while a mothballed terminal in Spain has been reopened.
Despite declining European gas demand, plans for new LNG infrastructure, including regasification and liquefaction terminals, are surging worldwide.
Analysts foresee peak global gas demand, yet the LNG pipeline continues to expand, posing a risk of oversupply. As of 2023, ongoing LNG projects amount to 917mtpa of export capacity and 705mtpa of import capacity, marking an 18% and 4% year-on-year increase respectively, with an estimated $1 trillion in investments.
