IEEFA: Tidal wave of new LNG supply to flood market amid demand uncertainty

As major importing regions – including Japan, South Korea, and Europe – aim to reduce LNG demand through 2030, global LNG suppliers and traders will increasingly depend on growth in emerging markets to both compensate for falling imports elsewhere and absorb a flood of new supply.

However, such rapid LNG demand growth in emerging economies is not guaranteed, even in an oversupplied market. Countries in South and Southeast Asia, for example, will face distinct barriers to rising demand, including fiscal and credit challenges, extensive infrastructure delays, and contracting issues, among other obstacles.

The global LNG crisis following Russia’s full-scale invasion of Ukraine in 2022 brought these issues to the fore, spurring many markets to reduce the role of LNG in their development plans and accelerate the development of alternative energy sources.

IEEFA expects Europe’s gas and LNG demand to fall through 2030. Europe’s natural gas demand has declined 20% since 2021, due to fuel switching, increased nuclear and renewables generation, and energy efficiency measures.

LNG imports to Japan and South Korea fell 8% and 5%, respectively, in 2023. National energy and climate plans envision steep reductions in the role for LNG in both countries, turning instead to nuclear and renewable energy. Taiwan, on the other hand, aims to cut nuclear power, which may boost LNG demand.

China reclaimed 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 renewables capacity are constraining the need for LNG in the power sector.

In South Asia, fiscal challenges along with the inherent volatility of LNG prices may constrain rapid near-term demand growth, and the role of LNG in power generation is likely to remain low.

In Southeast Asia, extensive development timelines, contract negotiations, and repeated project delays for LNG-related infrastructure 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 LNG market’s volatility and vulnerability to global conflicts. The gas crisis exacerbated by the full-scale invasion of Ukraine brought challenges and opportunities to Europe, where, despite an increase in LNG imports, energy security was ultimately maintained thanks to a historical 20% reduction in gas consumption,” said Ana Maria Jaller-Makarewicz, Lead Energy Analyst, Europe.

As the recent LNG crisis compromised demand growth, high prices also spurred a flood of new supply. Overall, IEEFA expects LNG liquefaction projects already under construction to add 193 million tpy through 2028 – a 40% increase in just five years – bringing the world’s total nameplate liquefaction capacity to 666.5 million tpy.

The largest share of supply additions will come from the US and Qatar, likely pushing Australia to third place among global LNG suppliers. Meanwhile, substantial LNG capacity is under construction in Russia, Canada, and African nations.

In recent years, global LNG traders – including, for example, Shell, TotalEnergies, and many others – have contracted to buy the largest share of LNG volumes from new export facilities, with the aim of reselling cargoes to buyers around the world. But if rapid and sustained demand growth does not materialise, LNG suppliers and traders will likely face an extended period of low prices and slim profits.

“If rapid and sustained demand growth does not materialise, LNG suppliers and traders – particularly those with higher costs and significant uncontracted supplies – will likely face an extended period of low prices and slim profits,” added Clark Williams-Derry, Energy Finance Analyst.

Europe highlights

European gas demand is expected to fall by 11% between 2023 and 2030, while LNG imports are forecasted to peak in 2025. Europe imported a record amount of LNG in 2022 to replace lost Russian pipeline gas supplies, but in the last two years, the 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 primarily from the US (46%), Qatar (12.1%), Russia (11.7%), and Algeria (9.5%).

European gas prices have stabilised amid declining demand and high storage levels. Natural gas prices in Europe have retreated from 2022 highs due to mild winters, weak demand, increased hydroelectric and nuclear generation, and strong renewables performance.

Europe’s ongoing buildout of LNG infrastructure is likely to result in significant excess capacity and could cause utilisation rates to fall over the remainder of the decade. EU member states have agreed to continue reducing gas demand to reinforce the security of energy supply and contain price volatility.

Read the article online at: https://www.lngindustry.com/liquid-natural-gas/26042024/ieefa-tidal-wave-of-new-lng-supply-to-flood-market-amid-demand-uncertainty/