LNG market reaches ‘fragile equilibrium’, but uncertainties abound
The IGU’s report found that the lack of spare supply in the near-term was providing a fragile stability to the market for now, with trade reaching a record level of 401.42 million metric tonnes in 2023, growing by 2.1% from the previous year, supported by high spot purchases from a gradual decline in prices.
However, that pace of growth is significantly lower than the 5.6% growth of 2022, as limited supplies impact how much the market can grow.
In the last few years, LNG prices have been on something of a rollercoaster as geopolitical uncertainties and unseasonal weather create increased uncertainty around supply and demand. A warm northern hemisphere winter in 2022 lowered prices substantially, for example, but demand could spike again in the coming winter, particularly as the conflict in Ukraine continues.
Earlier in the quarter, Shell estimated that global demand for LNG will rise by more than 50% by 2040, as industrial coal-to-gas switching gathers pace in China and South Asian and South-east Asian countries use more LNG to support their economic growth. The energy giant also pointed out that tight supplies of LNG were constraining growth.[1]
The IGU’s report points out that global liquefaction capacity is likely to climb from 483 MTPA in 2023 to over 700 MTPA by 2030, driven by new FIDs (pre-final investment decision stage) and the start-up of projects currently under construction to support growing demand. New capacity is expected in the US (363.9 MTPA), Canada (230.3 MTPA), Russia (157.4 MTPA), Africa (101.3 MTPA), Asia Pacific (66.5 MTPA) and the Middle East (71.5 MTPA).
As these substantial new supplies of LNG start coming online from 2026, there’s a concern that demand won’t keep up and a new glut of supply will drive prices down. But at the same time, at the beginning of the year, the Biden administration announced its decision to reconsider how it licences new LNG export terminals[2], which could constrain supply growth. Added to uncertainties about how long the Russia-Ukraine conflict will continue and how it will end, and the pace of energy transitions for different countries around the world, and the volatility in the market looks set to continue.
The IGU’s report points out: “The rapid evolution and development of the global LNG market is ongoing to meet market players’ needs and respond to changing dynamics. Growing gas demand in emerging markets, increasing diversification of market participants, and expansion of LNG infrastructure and acceleration in technology development as well as innovation are the dynamics of today’s LNG market.
“At the same time, regulatory, geopolitical, infrastructural, and environmental concerns could challenge the steady growth of the LNG industry and introduce uncertainty. Navigating these opportunities and uncertainties requires innovations in project planning to make LNG sustainable in the long-term.”
Monitoring LNG prices is crucial and Parameta’s LNG pricing service, which offers robust and transparent daily benchmarks to better enable trading between major LNG hubs, can help.
Powered by data from TP ICAP’s leading Energy & Commodities desks, Parameta Solutions’ waterfall methodology is implemented using leading benchmark technology from our partner General Index. The Parameta Solutions Global LNG Basis Indices will offer an alternative tech-led approach to traditional journalistic price assessments and allow market participants to follow evolving trends closely.
Bibliography
[1] Shell Shell LNG Outlook 2024 [2] Parameta Solutions Unexpected Change in the LNG Market
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