The global LNG market is about to see some major changes, with a wave of new supply being shipped out from North America and the Middle East. As this new LNG export capacity comes online, concerns about potential oversupply and falling spot prices are mounting. However, some important factors could help mitigate these risks, such as evolving demand dynamics in emerging markets and the LNG industry’s historical adaptability to market shifts. Today we’ll explore whether the looming flood of LNG could lead to a period of oversupply and falling prices or if there are unseen forces at play that might alter that trajectory.
The enormous volume of LNG supply expected to come online in the mid-to-late 2020s is raising concerns about a glut and the potential for significantly lower prices. Some are even speculating that we could see a repeat of what happened during the COVID crisis, when prices got so low that marginal costs weren’t covered and cargoes, notably from the US, were cancelled. Are we in for some serious deja vu?
Read also: Why NLNG instituted the N5m One-Off Award for media stakeholders for 20 years of The Nigeria Prizes
Before we go there, let’s first take a look at how we got here. Figure 1 below illustrates the ramp-up in global LNG capacity over the past 10 years—the orange bar segments show total capacity at the start of each year and the black segments show the capacity added that year. The bottom line is that global capacity has increased from about 280 Mtpa in 2014 to 475 Mtpa at the end of last year.
Angola LNG kicked off the LNG capacity spurt in 2013, which increased supply potential by 5.2 Mtpa (~ 0.67 Bcf/day), followed by Papua New Guinea LNG in 2014, contributing 8.3 Mtpa (~ 1.08 Bcf/d). Australian projects fuelled that growth further: Wheatstone, Ichthys, and Prelude floating LNG (FLNG) collectively added over 30 Mtpa (~ 3.89 Bcf/d) in 2017-19. Russia also bolstered output with its multi-train Yamal LNG project, contributing a collective 16.5 Mtpa (~ 2.14 Bcf/d) between 2017 and 2019.
The U.S. became a key player over that same period, with substantial capacity increases from projects like the Sabine Pass LNG as well as Corpus Christi LNG, Freeport LNG, and Cameron LNG. The Shale Era renewed the U.S. oil and gas industry, and domestic LNG import terminal sites were repurposed to export LNG, starting with Cheniere Energy’s Sabine Pass LNG facility in 2016. Over the next few years, the three other LNG export facilities came online, and by the end of 2020, U.S. LNG export volumes were topping 10 Bcf/d.
But when COVID caused global energy demand, and subsequently prices, to crater, the development of new projects came to a screeching halt. We are now seeing the effects of that pause in the relatively small amount of new capacity added in 2023 (rightmost bar in Figure 1). Of course, the effects of the pandemic eventually waned, and demand rebounded. Yet, that was also a time characterised by the wish of many Western governments to transition away from fossil fuels.
Read also: NLNG Train 7 alone is no longer ambitious- Tony Attah
Russia’s February 2022 invasion of Ukraine lent urgency to global energy strategies that were in the process of dramatic transformation, particularly in Europe. The region, already dealing with soaring prices in the second half of 2021 due to the approach of winter, was abruptly cut off from piped-in Russian gas, on which it relied (given percentage of demand met by Russian gas). Those events punctuated, with emphasis, the reality that renewable energy sources alone couldn’t bridge the gap. During the early months of the war, energy prices in Europe surged even higher, with natural gas soaring to record highs. Countries scrambled to secure alternative sources, pushing spot LNG prices to levels that strained industries and households alike. This price shock underscored the region’s vulnerability and accelerated the search for more diverse and reliable energy supplies.
While these events highlighted the vulnerabilities in Europe’s energy system, they also provided a boost to the LNG market. Previously stalled projects such as Germany’s Wilhelmshaven LNG import terminal and the Mozambique LNG export project were revived. And U.S. export projects that struggled to maintain commercial momentum or were even paused during COVID were suddenly popular again. And while those projects would take time to progress from final investment decision (FID) to reality, the increased investment would lay the groundwork for the next surge in LNG.
Before we go there, though, let’s look at where we stand today. More than half of the world’s LNG liquefaction capacity is concentrated in three countries: the U.S., with ~104 Mtpa (~13.52 Bcf/d) (see RBN’s LNG Voyager report for details on the U.S. market); Australia, with ~88 Mtpa (~11.44 Bcf/d); and Qatar, with ~77 Mtpa (~10.01 Bcf/d). That concentration has big implications for global energy security, pricing, and how the three nations position themselves in the broader energy scene.
And there’s more growth on the way. Figure 2 below shows the global distribution of LNG export projects that have reached final investment decision (FID) or have otherwise been given a final go-ahead.
North America leads global capacity additions (three bars to far left in Figure 2), with multiple projects slated to come online (see Big Wave for more), including Venture Global’s Plaquemines LNG, ExxonMobil and Qatar Energy’s Golden Pass LNG, and Cheniere’s Corpus Christi LNG expansion. Canada has three projects coming, and Mexico is emerging as an LNG player with its Altamira FLNG project, which will add 4.2 Mtpa (~0.56 Bcf/d) across three trains by 2026. Additionally, Sempra Infrastructure’s Energía Costa Azul (ECA) LNG project in Baja California is expected to add significant capacity. The ECA LNG project is under construction and will have an initial capacity of 3.25 Mtpa (~0.43 Bcf/d), with plans for future expansions. Together, these projects highlight Mexico’s growing influence in the LNG sector and its strategic position to supply Asian and Latin American markets.
Read also: NNPC in talks with investors to revive Brass, Olokola LNG projects
Other global projects include:
Qatar: Expansions of North-Field East and North-Field South projects, which are expected to bring a combined 48 Mtpa (~6.4 Bcf/d) of new capacity online between 2026 and 2028.
Russia: The Arctic LNG 2 project, with its phased rollout between 2024 and 2027, will add 13.2 Mtpa. Additionally, the Ust-Luga project is expected to contribute 12.8 Mtpa (~1.7 Bcf/d) by 2028.
Africa (Nigeria and Congo): Nigeria will add a seventh train at its Nigeria LNG facility with 4.2 Mtpa (~0.56 Bcf/d) by 2026. The Congo-Brazzaville FLNG project will add a combined capacity of 3 Mtpa (~0.4 Bcf/d) also by 2026.
Australia: The Pluto LNG Train 2 project will add 5 Mtpa (~0.7 Bcf/d), and the Ichthys LNG debottlenecking project will add approximately 1.8 Mtpa (~0.24 Bcf/d), both through 2026.
Southeast Asia: Projects like Malaysia’s PFLNG Tiga will add 2.0 Mtpa (~0.28 Bcf/d) by 2028.
It’s worth noting that several LNG projects around the world faced setbacks last year, including the first phase of the Greater Tortue Ahmeyim project in Mauritania and Russia’s Arctic LNG 2 project. These and other deferments pushed several planned additions into 2024 and beyond. Altogether, though, the outlook for global LNG capacity through 2028 remains robust, as shown in Figure 3 below, driven by ongoing investments and new developments.
At the same time that new LNG supply is expected to flood the market, traditional importers like Japan, South Korea, and Europe are experiencing reductions in consumption—particularly in Europe, due to its commitment to decarbonisation goals, rising energy prices, economic pressures, increased reliance on renewable energy sources, and a strategic diversification of energy supplies amidst shifting market dynamics. This, on top of the anticipated surge in LNG supply, has led to concerns of an oversupplied market, causing some to have flashbacks of the COVID price collapse.
However, several factors may mitigate such risks. One of the most significant is growing demand in emerging markets, particularly Southeast Asia and China. For instance, Southeast Asia is experiencing a notable increase in LNG imports, with countries like Vietnam, Thailand, and the Philippines expanding infrastructure to meet rising power demands of rapid population growth and economic development. The region is expected to see LNG demand rise by approximately 10 Bcf/d by 2050.
In addition to growing global demand, the international LNG market has shown resilience in adapting to supply and demand fluctuations. This adaptability was evident in 2023, when several key LNG-producing nations, including Australia and Qatar, took a cautious approach by slowing the addition of new liquefaction capacity in response to ongoing geopolitical and economic uncertainties. For instance, the expansion of Qatar’s North Field pumped the brakes. This deliberate pacing aimed to prevent an oversupply situation similar to the one seen in 2019, when rapid expansion in the U.S. and Australia, combined with weaker-than-expected demand growth in Asia, led to a glut in the market and a significant drop in LNG prices. (A similar back-off happened in 2014-16.) By moderating the pace of new capacity additions, producers sought to align supply growth more closely with actual demand, mitigating the risk of another price collapse and ensuring market stability.
Read also: Nigerian Railway Corporation takes delivery of LNG retrofitted locomotive
To navigate short-term supply challenges, LNG producers could explore new markets. For example, US companies have secured long-term supply agreements with emerging and growing markets in Southeast Asia and Africa. A case in point: Cheniere in June 2022 signed a 20-year agreement with Thailand’s PTT Global LNG that calls for the U.S. supplier to provide 1 Mtpa to PTT starting in 2026 and continuing through 2045.
Similarly, Shell’s acquisition of Pavilion Energy underscores its strategy to strengthen its presence in key Asian markets. In November 2020, Shell completed the acquisition of Pavilion’s entire portfolio, which includes a 1-Mtpa long-term LNG supply agreement with Qatar, a 10 percent stake in the Tanzania LNG project, and a 20-year LNG import terminal capacity at Singapore’s Jurong Island.
Producers may also turn to spot market and short-term sales to manage excess supply, as seen with Nigeria LNG Limited (NLNG) during the early months of the Russia-Ukraine war. By strategically timing spot market sales, particularly in Europe during peak winter months, NLNG maximised returns even in a volatile market environment.
Finally, storage and floating storage solutions will play a crucial, albeit limited, role in managing supply gluts for short periods. Russia’s Novatek, along with other companies like Shell and TotalEnergies, have utilised floating storage units (FSUs) to manage LNG supply during periods of low demand. For instance, in 2019, Novatek leveraged FSUs to store LNG when market prices were low, releasing it later in the year when prices improved. That enabled Novatek to capitalise on higher market prices and highlighted the effectiveness of FSUs in mitigating the impact of oversupply. Similarly, Shell has used FSUs to store excess LNG produced during low-demand periods, while TotalEnergies has employed this approach in regions like Southeast Asia to optimise supply and capture better market opportunities. These strategies reflect a broader industry trend of using flexible storage solutions to navigate market volatility and enhance profitability.
So, while we see a big influx of new global LNG supply from North America, the Middle East, and Africa over the next few years, some factors could keep oversupply concerns and potential price declines in check. Demand in China and Southeast Asia is expected to absorb a lot of this new supply, which could cushion price drops. Plus, the LNG industry has shown it can roll with the punches via production tweaks, flexible contracts, and finding new markets. The combination of strong demand and the industry’s knack for adapting could mean the future of LNG prices and market stability might not be as shaky as it seems.
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
