Global LNG outlook 2021-25 overview

BloombergNEF

Executive summary

The global LNG market is likely to be oversupplied until 2025. Supply growth exceeds the increase in LNG demand, with a new wave of projects expected to be commissioned over the next five years. Europe will continue to be a key balancing market, but demand from Asia could respond to prices and other factors.

Global LNG supply could reach 449 million tons by 2025, up 23% from 2020, driven by the U.S. and Russia. LNG project backfills or expansions are sustaining output in Australia, Middle East and Africa.

The U.S. could see its liquefaction capacity rise by more than half, overtaking Australia by 2024. Qatar will regain its top position after its expansion project is complete. Mauritania/Senegal, Mozambique, Canada and Mexico, will be among the newest LNG exporters.

Structural global LNG demand could rise 14% by 2025 from 2020, resulting in a 26 to 34 million tons a year call on balancing markets over 2022-25, of which Europe would be the biggest driver. China, South and Southeast Asia will be the key growth regions. Demand in traditional markets of Japan, Korea, Taiwan will largely be stagnant.

Pakistan, Bangladesh and Thailand would be the top three growth markets in emerging Asia over the next five years. New gas plants and falling domestic supplies will increase the need to import LNG. Eleven new markets could see their first LNG imports by 2025.

Pressure is mounting on the gas industry to lower emissions. Key gas markets and industry players are exploring carbon capture and storage, hydrogen and carbon offsets to reduce their emissions profile. With the energy transition accelerating, the outlook for LNG demand beyond 2030 is uncertain. As a result, the outlook for final investment decisions of new supply projects is equally unclear.

Source: BloombergNEF. Note: *Structural demand is the demand based on current prices and 30-year weather average. For 2021, demand forecast assumes Northwest Europe and Italy takes all volumes, or excess supply, needed to balance the market after non-European demand is met.

Global LNG outlook overview: Oversupply persists until 2025

Source: BloombergNEF. Note: ‘Others’ include Middle East, Americas, new markets, bunkering, and operational/voyage LNG losses (such as boil-off). *Structural demand is based on normal weather (30-year averages) and current futures prices.

The global LNG market is likely to be oversupplied over 2022-25, with excess supply ranging between 26 million tons to 34 million tons a year over this period. New liquefaction trains in the U.S. and Russia will push global supply up to 449 million tons in 2025, rising 23% from 2020. Structural LNG demand, on the other hand, is likely to grow at a slower pace than supply, increasing 14% from 2020 to 2025.

Higher demand or lower supply would need to bridge the supply-demand imbalance. For 2021, BNEF assumes Northwest Europe and Italy will be the balancing market after demand from all other markets is met. Subscribe to the Global LNG Monthly report for monthly updates on global LNG balances.

With supply being in excess of structural demand over 2022-25, the first impact will be downward pressure on prices. This will unlock additional price-sensitive demand with fuel switching in certain markets. The power sector in Europe and industries in China, South Asia and direct importers in South Korea could potentially respond. Cheaper LNG could also displace alternative pipeline gas imports in certain markets or incentivize excessive stockpiling – within contractual frameworks and storage capacity limitations, respectively. This response would be largely seasonal though.

If demand drivers are unable to balance the market, prices would fall to an extent to curb supply. Most of this flexible LNG supply will be from the U.S., but Egypt is increasingly seen as a variable supplier too.

Two unpredictable drivers could counter the imbalance. Structural demand projections are based on 30-year weather averages. Weather variations above or below the seasonal norms could create additional demand or destroy it. Europe and North Asia are the key regions where demand varies with weather, particularly winter. Unplanned plant outages and feedgas disruptions could turn down supply.

Global LNG demand: Emerging Asia accounts for more than half the demand growth

Source: BloombergNEF. Note: JKT is Japan, Korea and Taiwan. ‘Others’ include Middle East, Americas, new markets and bunkering. *Structural demand is based on normal weather (30-year averages) and current futures prices.

Global LNG demand in 2021 could reach 383m tons, up 8% from 2020. Structural global LNG demand is expected to rise an average of 2.3% per year over 2022-25, reaching 401m tons by 2025. China, South Asia and Southeast Asia would be the key regions for demand growth. Japan, Korea, Taiwan (JKT) will see a marginal decrease in demand, whereas structural demand* in Europe could fall sharply by 2025.

In a scenario where Europe absorbs all excess supply over 2022-25, the region’s potential LNG imports could be flat over the period.

Japan’s LNG demand will decline with higher nuclear generation, removing almost 10m tons of LNG demand over 2021-25. Korea’s LNG demand will fall over 2022-23, due to higher nuclear and coal generation, but then rise again as nuclear plants are phased-out. China continues to be the single largest market for LNG growth, but emerging Asia will contributed to half of total demand growth over the period.

For South and Southeast Asia, Pakistan, Bangladesh and Thailand will be the key growth markets over the next five years as domestic production is declining in all three countries. India’s LNG demand growth will be limited by an expected increase in domestic production.

Eleven new markets could join the list of LNG importers by 2025 – five in Asia (Hong Kong, Vietnam, the Philippines, Australia, Sri Lanka), three in Americas (El Salvador, Nicaragua, Ecuador), and three in Africa (Ghana, Senegal, Benin).

Global LNG supply: Growth comes from new capacity additions in U.S. and Russia

Source: BloombergNEF, Bloomberg Terminal’s AHOY JOURNEY . Note: MENA refers to Middle East and North Africa, Refer to the appendix to see countries in region groupings. Percentages shown represent growth from 2020 levels per region (middle chart). Capacity additions show full nameplate capacity in commissioning year.

Existing projects: Global LNG supply is expected to grow at an average of 4% per year from 2021-25, based on operational plants and under construction ones expected to come online by 2025. The growth is driven mostly by new projects in North America and Russia. The effect of new capacity additions in Africa and the Pacific Basin are countered by declining production from ageing facilities, particularly in Southeast Asia. Other facilities in Australia, the Middle East and West Africa, are extending production life through gas field backfills or expansions.

Under construction: BNEF expects nine new LNG projects, along with four ongoing expansions, to be ready by 2025. Global liquefaction capacity will grow by 104m tons a year from 2020, reaching 541m tons in 2025. Qatar will take back the crown as the top LNG exporter once its North Field East expansion is complete, the first of four trains expected in 2025. Meanwhile, U.S. capacity will grow 57% from 2020 to 105m tons in 2025 – overtaking Australia by 2024. Mauritania/Senegal, Mozambique, Canada and Mexico, will be among the newest LNG exporters.

Outlook: All the incoming Qatari volume, which currently still has no firm demand market, paints a bleak picture for other proposed LNG projects. To be successful, developers will need to secure enough commercial support to advance their projects. BNEF last projected there would be a gap in the market by early 2030s. To fill that gap new LNG projects need to take final investment decision by 2025. However, given the uncertainty of post-2030 LNG demand after a wave of carbon neutrality pledges, this outlook is unclear.