LNG market in ‘fragile equilibrium’ after disruptive two years but supply concerns remain

The global market for liquefied natural gas has reached a state of “fragile equilibrium” after two years of severe turbulence, but it still faces a lack of spare supply in the short term, according to a report. Despite lower prices , the growing global LNG market is tight due to supply constraints and increasing demand from emerging economies, the International Gas Union (IGU) said in a report on Wednesday. Global LNG trade grew by 2.1 per cent last year, surpassing 401 million tonnes, with the market now connecting 20 exporting markets with 51 importing markets, the IGU said. “As the world moves towards a low emissions future, nations are seeking ways to achieve their climate commitments while keeping energy affordable, available and secure,” said Li Yalan, IGU president. “LNG is a tool that will be critical to providing greater resiliency for rapidly changing energy systems.” Demand for the supercooled fuel reached a record high in 2022 as Europe scrambled to replace Russian pipeline gas with LNG, tightening the market and boosting prices. However, prices have fallen since last year due to an increase in new production complexes, especially in the US; milder winters in Europe and Asia, which have reduced the demand for natural gas for heating; and high storage levels in these regions. The US led the world in LNG exports last year, supplying 84.53 million tonnes to global markets compared to 75.63 million tonnes in 2022, the report said. The other top exporters were Australia with 79.56 million tonnes, Qatar with 78.22 million tonnes, and Russia with 31.36 million tonnes. China reclaimed its position from Japan as the largest LNG importer last year, purchasing 71.19 million tonnes. Japan and Korea were in second and third places despite yearly decreases, while India was fourth, driven by increased demand due to lower spot prices. “Global LNG market continues to rapidly evolve as it responds to growing gas demand in emerging markets, increasing number and diversification of market participants,” the report said. The LNG industry is “no longer a game only for big markets or big companies, with portfolio players playing an increasingly more important role”. Last year, about 180 companies were involved in LNG deliveries under term contracts, while about 35 per cent of the transactions were spot-priced, IGU said. In the Middle East, large energy companies such as Saudi Aramco, the world’s largest crude exporter, and the UAE's Adnoc have been increasing their exposure to LNG, which is seen as a low-carbon alternative to crude oil and coal. In May, Adnoc acquired an 11.7 per cent stake in phase one of NextDecade’s Rio Grande liquefied natural gas export project in Texas, marking its first investment in the US. The Abu Dhabi-based company also entered a 20-year LNG offtake agreement with NextDecade for 1.9 million tonnes a year on a free on-board basis at a price indexed to Henry Hub. Earlier this month, Aramco signed an initial agreement to offtake 1.2 million tonnes a year of LNG from the Rio Grande project for 20 years. The IGU said that the LNG market faces several major uncertainties, including the US administration’s pause on pending and future exports, sanctions on Russian exports, and continuing security risks in the Middle East. More than 120 million tonnes per annum of operational liquefaction capacity is more than 20 years old, with some complexes being mothballed due to insufficient upstream gas production, highlighting significant supply-side risks, the report said. In 2024, limited LNG supply growth of 3.5 per cent, down from 8 per cent between 2016 and 2020, will probably curb demand in Europe and mature Asian markets, the International Energy Agency said in a report this year. However, delays in new plants and feed gas issues could push supply increases to 2025, potentially causing significant price fluctuations, the agency said.

LNG market in ‘fragile equilibrium’ after disruptive two years but supply concerns remain

Increasing demand from emerging economies could tighten the market, International Gas Union says