The saturation cycle: why the LNG market will be oversupplied and what will happen to gas prices

The situation on the global gas market, which experienced a severe crisis in 2022, will change radically in the coming years. Thanks to the commissioning of numerous liquefaction terminals, by the end of the decade the LNG market supply may almost double, far exceeding demand. The surplus, which should lead to a strong decline in prices, will persist until at least the early 2030s. 

Three years ago, the global gas market experienced a crisis caused by Russia's invasion of Ukraine. Since then, Europe, the hardest hit by it, has largely replaced Russian supplies, but prices are still high compared to the pre-war period. 

Demand in Asia, another major consumer, is increasing due to economic growth and the substitution of coal for cleaner gas. But in the coming years, numerous new projects designed to liquefy exported gas will come online - most notably in the US and Qatar, but also in a number of other countries. As a result, the global LNG market will become even more global and competitive, and will face a glut, with supply far outstripping demand until the beginning of the next decade;

"Investment in LNG projects has historically been cyclical, with increased investment leading to falling LNG prices and stagnant investment leading to rising prices," a report by the Ministry of Economy, Trade and Industry in Japan, which is one of the largest importers of LNG, said. Investment decisions are usually made when prices are high, taking five to 10 years to build liquefaction plants. Once they are operational, the market becomes saturated and prices fall, the report said.

This is the period when the global LNG market is now entering. In early July, Canada joined the ranks of LNG exporting countries, with the first cargo leaving the British Columbia plant. The second production line of the LNG Canada Development plant will come online later this year, Cedric Cremers, president of gas operations for Shell, which owns 40 percent of the project and is the world's largest LNG trader, told Bloomberg;

As a result, Canada will immediately become the 8th largest LNG exporter, following Nigeria, according to Bloomberg. Two more Canadian projects are due to come online in 2027 and 2028, notes the U.S. Department of Energy's Energy Information Administration (EIA). 

Cremers calls Canada a "strategically critical location on the Pacific coast" that will be able to supply growing demand in Asia with "very cost-competitive gas from British Columbia."

Overall, about two and a half dozen new projects from North America to the Middle East will boost export capacity by more than 40% by 2030, outpacing demand growth and reshaping the market, notes Bloomberg. By comparison, capacity grew by just 8% between 2020 and 2024.

Export capacity in North America alone will more than double by 2028, according to a Decemberreport by the EIA. There are now 10 LNG terminals under construction on the mainland: five in the US, three in Canada (LNG Canada's first line is already shipping gas) and two in Mexico. If the projects are implemented on time, North America's export capacity will grow from 323 million cubic meters per day in 2023 to 691 million cubic meters per day in 2028 (from 118 billion to 252 billion cubic meters per year).

In the United States, already the world's largest LNG exporter, the figure would increase from 320 million cubic meters to 595 million cubic meters per day (up from 117 billion to 217 billion cubic meters on an annualized basis). 

LNG exports from the U.S. will grow 19% this year, and another 15% in 2026, according to the EIA's forecast. There are five projects underway in the country (one with two production lines). If the realization of three of them, which account for almost 50% of new capacities, is delayed, it may significantly affect the forecast, the experts of the department stipulate. But two of these three have already started deliveries in the winter, of which one reached its design capacity in the spring, while the other is to put all capacities into operation by the end of 2026.

Rising global living standards, industrial automation, and explosive growth in computer power,especially for artificial intelligence, are demanding more and more electricity,notes Jon Treacy, publisher of investment newsletter Fuller Treacy Money. "Natural gas is a transitional energy resource that is eating away at coal's market share. The global gas market continues to expand and will become more homogeneous as it develops," he says. 

Global LNG market liquidity and supply flexibility are growing, notes the International Energy Agency (IEA), - so much so that "there is a high degree of uncertainty about which markets and sectors will be able to absorb the additional volumes of gas" threatening to hit the market in the coming years. In a baseline scenario based on the development of the sector based on existing and announced government policies, the agency forecasts a global LNG market surplus of 130 billion cubic meters in 2030. 

By comparison, this is almost half of the total amount of gas the EUhas purchased in 2024 (272.9 billion cubic meters), and just 13 billion cubic meters less than it received from its two largest suppliers, Norway (by pipe) and Russia (by pipe and in the form of LNG). 

If all projects currently underway are completed on time, global liquefaction capacity will grow by 46.5%, from 580 billion cubic meters in 2023 to 850 billion in 2030, the IEA forecasts. With capacity growing by 270 billion, the agency estimates demand will increase by only 145 billion cubic meters. 

Excess supply will lead to falling prices, which could fall by about half from 2023 levels in the EU and by 35% in China and Japan. Even if this spurs additional consumption, which could be around 75 billion cubic meters in 2030, producers will only increase the total utilization of LNG capacity from 80% to 90%. At the moment, LNG plants are operating almost at the limit, at 95% utilization;

"Existing and under-construction LNG export capacity is sufficient to meet projected demand under the baseline scenario up to 2040," the IEA states.

Japan's Ministry of Economy compared several main scenarios (three from the IEA, two each from Shell and BP): They show that demand will lag far behind supply for the rest of the decade and in no case will exceed it before 2033. 

Large LNG projects are underway in Africa (Mozambique, Mauritania/Senegal), Indonesia, Argentina, where the first export terminal in South America is due to appear, the ministry's report said.

Further evidence of the globalization of the still partially fragmented world LNG market and the significant increase in supply is the massive construction of specialized tankers. Qatar, one of the world's largest liquefied natural gas suppliers, which last yearplanned to increase capacity by 85% by 2030, from 77 million to 142 million tons (from 106 billion to 196 billion cubic meters), in April this yearcontracted with China State Shipbuilding Corp. to build 18 LNG tankers.

A month earlier, state-owned QatarEnergy, preparing to ramp up supplies, chartered 44 tankers. 

In 2024, 67 LNG carriers were launched (up 60% year-on-year), bringing the number of LNG carriers in the world to 831, with another 103 tankers scheduled for delivery this year, Bloomberg reported citing data from the International LNG Importers Group. At the same time, shipbuilders' order books account for almost half of the number of operating LNG tankers.

The global LNG market "will be well supplied from 2027, 2028, 2029," as "because of the crisis in 2022, a lot of new capacity is being built - in the U.S., Qatar," Patrick Pouyanne, CEO of France's TotalEnergies, said at an energy conference in Tokyo in June. As for Europe, there will be many additional alternatives to Russian gas on the global market in the coming years, so the EU, which intends to completely abandon it by the end of 2027, will easily find a replacement, Pouyanne said.

This article was AI-translated and verified by a human editor