The global LNG industry will require 90 million tonnes/year (tpy) of new supply by 2035 to meet growing demand, while market volatility is expected to persist as the market rebalances post 2025, according to Massimo Di Odoardo, vice-president, gas and LNG research at Wood Mackenzie.
Speaking at Wood Mackenzie’s Gas, LNG and the Future of Energy 2023 conference in London, Di Odoardo said that there is no end in sight to the current volatile market dynamics currently in place.
“There is no immediate cure as most supply under construction will not be available until at least 2026,” Di Odoardo said. “As a result, buyers still face some years of high – and volatile – prices before the next wave of LNG supply rebalances the market and improves affordability.”
Di Odoardo added that recent market dynamics are a stark reminder of how susceptible energy markets are to external shocks, including conflict, geopolitical tensions, and supply disruption.
“The global gas market has staged a remarkable recovery since Russia’s invasion of Ukraine in early 2022 but remains easily spooked,” Di Odoardo said. “The conflict in Israel/Gaza, possible pipeline sabotage in the Baltics and the threat of strike action at Australian LNG facilities all pushed spot prices up 35% through October.”
Market volatility “a constant”
Di Odoardo added that a record 200 million tpy of new supply is under construction as players bet big on Asia’s push to reduce its dependence on coal and Europe’s need to replace Russian gas. However, with Europe increasingly dependent on LNG, and with limited flexibility from pipeline imports and coal, Europe and Asia will both rely on global LNG availability. This will expose the market to continued price volatility.
“At times of excess LNG supply, prices could be extremely low as the market tries to absorb more LNG than required, possibly testing the economics of US LNG,” Di Odoardo said. “But as markets tighten, for examples during cold winters across the Northern Hemisphere, prices could be extremely high as both Europe and Asia scramble to secure marginal cargoes meaning volatility will persist also after the market has rebalanced in the second half of this decade.”
European, Asian demand
Di Odoardo said despite declining European gas demand, the anticipated decline in domestic production and imports from Algeria as the decade progresses, LNG demand across the continent will not peak until 2030.
“The recent signing of 8 million tpy of LNG contracts from Qatar and its partners Shell, TotalEnergies and Eni to Europe through 2053 underpins supplier confidence in the longevity of European LNG demand,” Di Odoardo said.
LNG demand will increase in Asia, the traditional main market for LNG, as imports from China and several other emerging markets in the region will rise two-fold by 2030, he said. China LNG demand will increase by 12% in 2023, while longer term demand growth is underpinned by the 50 million tpy of LNG contracted over the past 2 years. Other emerging markets in Asia will also need to grapple with declining domestic supply, boosting LNG import requirements. However, he added that while rising economic growth in Asia will be a major driver of LNG demand, it is not enough.
“Domestic policies across Asia must increase their focus on decarbonization and ensure appropriate pricing and infrastructure developments,” Di Odoardo said. “LNG developers must also play their part, ensuring affordable LNG supply if Asia’s full potential is to be unlocked.”
