HomeNewsIEEFA: Turmoil in global LNG markets is curbing long-term demand growth

IEEFA: Turmoil in global LNG markets is curbing long-term demand growth

2/17/2023

Global liquefied natural gas (LNG) supplies are likely to remain tight through 2025, curbing demand growth in key Asian import markets. European LNG demand may remain strong in the short term, but will decline by 2030 as decarbonization and energy security policies take effect. Meanwhile, a wave of new LNG export capacity coming online later in the decade could create a mismatch between supply and demand, elevating financial risks for LNG suppliers and traders.

The findings come from the new Global LNG Outlook from the Institute for Energy Economics and Financial Analysis (IEEFA), which analyzes LNG supply and demand developments in Europe, Asia, Australia, the U.S. and Qatar. The report finds that last year’s LNG market turmoil—characterized by record high prices and unreliable supplies—has undermined long-term LNG demand growth in both Europe and Asia:

  • In 2022, European countries boosted LNG imports by 60% to make up for declining pipeline gas shipments from Russia. Europe’s red-hot LNG demand drove global spot prices to all-time highs, forcing price-sensitive Asian buyers to slash LNG purchases and curtail plans for new LNG imports.
  • China cut 2022 LNG purchases by 20%, due to a combination of high prices, COVID-19 shutdowns and slower economic growth. High LNG prices have pushed the country’s gas buyers to rely more heavily on domestic production and pipeline imports.
  • India, Bangladesh and Pakistan slashed LNG demand by a combined 16% last year. Concerns over fuel security, unaffordability, rapidly depleting foreign currency reserves and demand destruction could limit the region’s medium-term LNG imports.
  • Southeast Asian buyers face challenges from high prices and infrastructure constraints. Long-term LNG contracts with deliveries starting before 2026 are reportedly sold out globally, forcing Southeast Asian countries into expensive spot markets. 
  • In Japan and South Korea, high LNG prices accelerated a resurgence of nuclear power generation that could slash power sector gas demand. In Taiwan, persistent terminal delays and state-owned utility financial difficulties could constrain rapid increases in LNG imports.
  • Europe’s LNG demand could remain strong in 2023 but is poised to fall, as EU climate and energy security policies curtail gas demand by at least 40% through 2030. Although new LNG terminals could boost the continent’s import capacity by one-third by the end of 2024, Europe’s ambitious energy transition targets mean that much of the new capacity could remain unused.

The Russia-Ukraine crisis has exposed long-term financial risks throughout the LNG value chain. In 2022, high spot prices and supply disruptions earned LNG a reputation as an expensive and unreliable fuel source, undermining the prospects for demand growth in key markets. When large volumes of new supply enter the market starting in mid-2025, it could trigger a supply glut, heightening the financial and pricing risks for LNG exporters and traders.

 

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