Mon, Jun 17 2024 17 June, 2024

Global LNG expansion continues, but future demand uncertain

A new report tracks the wave of global LNG projects proposed or under construction. But not all will get built, and the financial risks are significant as the energy transition proceeds.

An aerial view of the port of Rotterdam in the Netherlands (Photo credit: Adobe Stock/Nataraj)

The global LNG industry may be building too much gas import and export infrastructure, with a glut in supply threatening to leave governments and investors with stranded assets, according to a new report.

Russia’s 2022 invasion of Ukraine sparked a global energy crunch and led to skyrocketing prices for LNG. While LNG export and import projects take years to build, some projects that were already in the works or were languishing on the drawing board saw renewed momentum after the onset of war.

Those impacts began to materialise in 2023, with three final investment decisions issued for LNG export projects in the U.S., and the rapid commencement of operations for new import infrastructure in Europe.

A new report from Global Energy Monitor finds that there is a total of 917 million tonnes of annual LNG export capacity (mtpa) proposed or under construction around the world, along with 705 mtpa in import capacity. That equates to roughly $1 trillion in investment.

Compared to a similar report issued in September 2022, the volume of export capacity under development or proposed has increased by 18 percent, and import capacity has increased by 4 percent.

“Building even a fraction of these projects would threaten to further delay the energy transition during a critical period,” the report warned.

An estimated 193 mtpa of export capacity is under construction, which will expand total export capacity by 41 percent when completed. Half of that total is concentrated in just two countries: the U.S. and Qatar.

But the ongoing expansion of LNG is occurring even as analysts see demand growth slowing. A recent report from the International Energy Agency expects global gas demand to peak in the next few years, after which it will enter a period of gradual decline.

LNG projects have commercial lifespans that can run 40 years or more, and investor returns are calculated assuming decades of operations.

Europe is planning 183 mtpa in LNG import capacity, but demand in Europe “could prove short-lived as the continent pursues its decarbonization agenda,” the report warned.

More than a third of global LNG import capacity is planned for China. For years, China was the fastest source of new LNG demand, and the country has been routinely positioned by LNG exporters as a nearly endless source of new growth. But future demand is “uncertain,” Global Energy Monitor said.

That poses financial risks to investors and governments supporting the LNG expansion.

“If governments meet their stated climate goals, export projects under construction today worth an estimated US$118 billion could fail to recover their initial investments,” the report said.