LNG demand, growth expected against odds

Last year saw global LNG demand and supply hit unprecedented volatility. Prices for the super-cooled fuel in both Europe and Asia spiked to cost-prohibitive record highs along with multi-year low inventory levels.

These market dynamics are largely attributed to pipeline gas supply disruptions to Europe as the Kremlin used gas supply in a tit-for-tat retaliation against EU sanctions slammed against it over its illegal invasion and ongoing war in Ukraine.

Before Russia’s invasion, the EU received around 40% of its gas supply from Russia, while Germany, the bloc’s largest economy,  took in as much as 55% of its gas from state-run Russian gas supplier Gazprom.

EU members, however, were forced to procure whatever extra LNG supply they could find on the spot market, while also frantically building out LNG import infrastructure.

These fundamental LNG market changes will be felt for the rest of the decade (including in the Asia-Pacific region, home to two-thirds of global LNG demand), according to the Institute of Energy Economics and Financial Analysis’ (IEEFA) recently released Global LNG Outlook 2023-27.

“Costly and unreliable fuel”

“High [LNG] prices and supply disruptions have consequences,” the IEEFA report said. “In many Asian nations, LNG has now acquired a reputation as a costly and unreliable fuel. Proposed LNG import projects in the region now face increased delay and cancellation risks, while governments in key LNG growth markets have announced new policies designed to limit dependence on global gas imports.”

These higher prices negatively impacted developing Southeast and South Asian countries the most. “Long-term contracts with deliveries before 2026 are reportedly sold out globally, meaning price-sensitive Southeast Asian buyers risk high exposure to volatile, expensive spot markets,” the report said.

Vietnam and the Philippines, Southeast Asia’s two newest countries to develop LNG infrastructure, however, are still pushing their own respective LNG import development plans.

The Philippines just greenlighted its seventh LNG import terminal, though nearly all of its LNG procurement will have to come from the spot market. Vietnam is still pushing through with its LNG development plans but has slowed additional new project proposals, while planning to develop more of its offshore natural gas resources.

South Asian LNG dilemma

South Asia, for its part, has borne the brunt of higher LNG prices in the region, with Bangladesh and Pakistan suffering both political and economic repercussions. Bangladesh’s reliance on costly imported LNG has already caused major blackouts over most of the country. Blackouts are expected to continue until 2026.

Since it’s been unable to secure enough LNG spot purchases at affordable prices Bangladesh has also been forced to seek financial assistance from international creditors along with the International Monetary Fund (IMF).

Pakistan’s LNG quandary is even more complicated. The cash-strapped country, also suffering from wide-spread blackouts, could face years of fuel supply shortages due to higher LNG prices.

In October, no suppliers responded to Pakistan LNG’s tender to procure LNG for between four to six years starting January, Bloomberg reported at the time.

India, which as recently as 2021 declared it would become a natural gas based economy by the end of the decade, also suffered from higher LNG prices, causing it to make a controversial pivot back to coal for power production.

Legacy Asian LNG importers

The rest of the Asia-Pacific region is faring better than South Asia, but to varying degrees.

Legacy LNG importers Japan and South Korea plan to reduce LNG purchases while boosting nuclear, wind, and solar power generation to achieve energy security, economic growth, and decarbonization goals, the IEEFA report said. Japan is the world’s largest LNG importer, followed by China, South Korea, India and Taiwan.

China, for its part, saw a 20% dip in its LNG procurement last year. This came not only from cost prohibitive LNG prices which saw the country turn to more gas pipeline imports along with more domestic gas production, but also from Beijing’s zero Covid policy and subsequent lockdowns throughout the year that led to slower economic growth. China’s over all gas usage, however, including pipeline gas, slipped only 1% in 2022 compared to the previous year.

High prices forecasted

The IEEFA also sees “modest supply additions in global LNG markets over the next several years, even as European nations continue to import significant LNG volumes to replace lost Russian pipeline gas.”

It predicts that weak supply growth and robust demand will keep global LNG prices structurally elevated for several years.

“Sustained high global LNG prices; weak LNG demand growth and elevated price sensitivity in Asia; declines in gas consumption in Europe; and a multi-year string of global capital investments in cost-competitive energy alternatives will undermine global LNG demand growth over the next several years,” the report added. However, over the long-term LNG development is forecast for a resurgence.

Largest additions in LNG history

“Global LNG supply growth has entered a two-year slump, with relatively little new liquefaction capacity being added through mid-2025… however, the current downturn will be followed by the largest supply additions in the history of the LNG industry, driven primarily by new projects in the US and Qatar,” the IEEFA report added. “In 2026 alone, new liquefaction capacity additions will exceed the preceding five years combined.”

At least three proposed US LNG export plants have likely found enough customers to receive financial approvals this year, Reuters reported. About a dozen more developers hope to make final investment decisions (FID) this year, it added.  LNG exports from the US reached some 10.6 bcf/d in 2022, making the country the second biggest LNG exporter behind Australia.

Qatar is also ramping up its liquefaction capacity by developing its profile North Field East that will see its capacity increase from a current 87 mtpa to as much as 126 mtpa by 2027.

Energy economics favour renewables

However, renewables have already reached cost parity with their fossil fuel counterparts, including LNG development, and in many cases are now less capex-intensive. Adding to the predicament, both gas and LNG are large GHG emitters across their entire value chain in addition to methane leakage problems.

Notably, renewables were the world’s cheapest source of energy in 2020, while the cost of large-scale solar projects plunged 85% over the previous decade, a World Economic Forum report said.

Of the solar, wind and other renewable energy projects that came on-stream in 2020, nearly two-thirds, some 62%, were less expensive than the cheapest new fossil fuels, according to the International Renewable Energy Agency (IRENA).