LNG heading for oversupply - IEEFA

Markets could be pushed into an extended period of oversupply, according to the latest Global LNG Outlook, published by the Institute for 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 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, IEEFA warned. The global LNG crisis, following Russia’s invasion of Ukraine in 2022, brought these issues to the fore, spurring many markets to reduce LNG’s role in their development plans and accelerate the development of alternative energy sources, highlights:

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

? Last year, LNG imports to?Japan and South Korea fell 8%?and 5%, respectively. National?energy and climate plans point?to steep reductions in LNG’s?role in both countries, who will?turn instead to nuclear and?renewable energy. Taiwan, on?the other hand, aims to cut nuclear power, which may boost?that country’s 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 future LNG demand?growth. Unprecedented increases in renewables capacity?are also 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 LNG’s role 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.

As the recent LNG crisis affected demand growth, high prices also spurred a flood of new supply.

Overall, IEEFA predicted that LNG liquefaction projects already under construction will add 193 mill tonnes per annum through 2028 — a 40% increase in just five years — bringing the world’s total nameplate liquefaction capacity to 666.5 mill tonnes.

The largest tranche of supply additions will come from the US and Qatar, likely pushing Australia to third place in the list of global LNG suppliers.

Meanwhile, substantial LNG capacity is also under construction in Russia, Canada, and some African nations.

In recent years, global LNG traders — including, for example, 壳牌 , TotalEnergies , and others?— have contracted to buy the largest share of LNG volumes from new export facilities, with the aim of reselling cargoes to buyers worldwide.

However, 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, IEEFA concluded.?