Global demand for liquefied natural gas or “LNG” looks set to grow due to decarbonization efforts around the planet triggering shifts away from coal, and, the increasing acceptance of the fuel to power the spread of hyperscale data centers.
While that’s an encouraging prospect for those in the industry, current projections and market models also point to there being more LNG volumes produced than needed. From a supply perspective, the global LNG trade grew by a mere two million tons in 2024, to hit 407 million tons due to constrained new supply development, according to Shell.
While that marked the lowest annual increase in 10 years, more than 170 million tons of new LNG supply are set to be available by 2030, the energy major noted in its latest market assessment.
However, there is unease in the market about supply exceeding demand from 2027 onward, and a potential glut that could persist to the end of the decade dragging prices lower. Investment bank JPMorgan describes the approaching market as “structurally oversupplied.”
The bank along with many of its Wall Street peers, as well as other forecasters such as Bloomberg and S&P Global Commodities Insights, have put forward base cases wherein supply may exceed demand by 60 to 65 million tons in 2030, as new liquefaction projects are commissioned.
Expect More LNG, Lots More
Much of the uptick may be attributed to the U.S. The nation went from producing zero LNG in 2015 to exporting nearly 90 million tons of it in 2024, thereby first bagging and then solidifying its position as the world’s largest LNG exporter.
The U.S. is also expected to produce more than a third of global LNG supply by 2030. Rivals Qatar and Australia are adding plenty of capacity too.
Of course, no one can accurately pinpoint what may ultimately unfold each year to the end of the decade and beyond. That’s because project delays and sanctions have the potential to decrease the anticipated level of oversupply.
For instance, hypothetically, if LNG projects currently under construction get delayed by six months up to a year, their cumulative production volumes could be shifted to later years making a difference of as much as 24 months. However, burgeoning demand is keeping industry expectation afloat.
Burgeoning LNG Demand
The inexorable direction of travel for LNG cargoes is eastward, as has been pretty visible for a while now. The big four Asian powerhouses – China, India, Japan and South Korea – remain interested and invested in LNG as part of their wider energy transition and lower emissions strategy.
That’s why energy majors – including world top ten producers – are in no mood to downsize their LNG commitments either. Furthermore, in the run up to Gastech, the natural gas industry’s biggest annual gathering being held in Milan, Italy this year, the oil-rich Saudis are also signalling their intentions of wanting to be a force to reckon with in the global LNG trade.
In April, Saudi Aramco inked a 20-year deal with U.S. firm NextDecade to buy 1.2 million tons per year. The contract gives the Saudis the option to sell the LNG globally, while reserving the right to bring it to the kingdom.
The deal followed a Saudi acquisition of a 49% stake in the LNG company MidOcean Energy in September 2024, The market is keenly observing such subtle shifts by the Saudis and other major energy sector players.
Pricing Diversity May Make A Difference
Diverse pricing models and liquidity over the near- to medium-term are other subtle shifts that may make a lasting difference too. These include destination-free contracts, shrinkage of oil-indexed agreements and the rise of short-term ad hoc deals.
Agility on this front might become the need of the hour because European buyers are likely to have a lower appetite for more long-term contracts compared to their Asian counterparts due to a more vociferous socio-political stance on meeting their current net zero emissions targets.
It leads the International Energy Agency to conclude that Europe’s uncontracted LNG demand will increase by roughly 40% over 2023 to 2030, with producers more than willing to go down diverse pricing routes.
And less than a third of the expected demand increase from Asia between now and 2030 is covered by contracts, with South Korea and emerging Asian markets driving most of the difference between demand and contract levels.
It is why the share of destination-free contracts is expected to increase to 51% by 2027, amid the gradual expiry of destination-fixed legacy contracts and the entrance into force of new destination-flexible agreements, the IEA notes.
As for the shift in pricing terms, based on existing agreements, the share of oil-indexed contracts is expected to shrink from 56% in 2023 to 52% by 2027 amid the growing role of gas-to-gas indexation and hybrid pricing formulae.
Glut or no glut, changes are afoot to make the global LNG market more agile and responsive than it has ever been.