Global LNG Market Outlook Dive into our report on carbon offsets to learn more about the challenges and opportunities presented by a commoditized carbon offset market. Global LNG market outlook 2022-26 Europe’s diversification away from Russian gas is driving global LNG market dynamics Introduction Contents 1. Outlook overview 2. Global LNG balance 3. LNG demand 4. LNG supply 5. Global energy shortage The global liquefied natural gas (LNG) market is expected to be tight until 2026 as Europe looks to replace Russian natural gas with LNG. This report aggregates research and analysis from BloombergNEF and Bloomberg News diving deep into the outlook for global LNG demand, supply and the impact of global energy shortage. Outlook overview Tight market ahead Global LNG outlook overview: Tight supply expected until 2026 The global LNG market is expected to be tight over 2022-26 as Europe’s quest to reduce its dependency on Russian gas increases demand for LNG. This will curb gas demand growth in China and emerging Asia as the European market outbids these buyers for the limited amount of flexible LNG supply. Source: BloombergNEF. Note: ‘Others’ includes Middle East, Americas, Africa, other markets, bunkering and operational/voyage LNG losses (such as boil-off). Demand is based on normal weather (10-year average) and current futures prices. To attract the LNG needed to replace Russian pipeline gas to Europe, BNEF expects US LNG netbacks for European TTF prices to be higher than Asia’s benchmark JKM for the forecast period 2022-26. With tight supply anticipated in the coming five years, prices are expected to remain at elevated levels compared to historical averages over 2017-19, before Covid-19. The ramp-up of new supply projects, especially in the US, is forecast to raise global supply to 460 million tons, up 19% from 2021. LNG demand growth is likely to be constrained by supply between 2021-26, with 18% growth estimated, although Europe is expected to see imports spike during the period. What has changed from the previous LNG outlook? Geopolitical changes are the most significant driver for the tight LNG market ahead Source: BloombergNEF Source: BloombergNEF. Note: ‘JKT’ refers to Japan, Korea, Taiwan. BNEF’s five-year LNG market outlook published in June 2021 estimated that the market would be oversupplied over 2021-25. But the market has been turned on its head following the energy crisis in the second half of 2021 and Russia’s invasion of Ukraine. This current LNG outlook now forecasts a tight market throughout 2022-26. The above charts show the key changes from the previous outlook for LNG supply and demand in 2025. Analyzing the supply and demand changes for 2025 helps distinguish the change in forecast trends by market. Supply is now expected to be 7 million tons lower than the previous outlook and demand 26 million tons higher, resulting in a tight market. The expectation of high LNG prices may drive producers to ramp up flexible supply and increase spot volume. Investments in liquefaction facilities are likely to accelerate, but most are unlikely to add supply before 2026, given the lead time needed to construct a new plant. Development concepts for LNG projects with shorter start-up timelines could bring much-needed supply earlier, but unforeseeable delays and sanctions could reduce supply too. Asian consumers will suffer most from the expected tight market. Price-sensitive buyers in China and South and Southeast Asia will be forced to reduce LNG imports and replace them with pipeline imports (in the case of China) or other fuels. Downstream users, especially in the power and industrial sectors, will need to reduce operations to cut gas consumption. Supply drop: The forecast reductions from operational plants are largely driven by the expectation of more rapid production declines at ageing plants in Southeast Asia, the Middle East and Africa. Project delays at under-construction plants, particularly in Qatar and Russia, have spurred a further downward revision to our supply forecasts. However, newly commissioned projects in the US and Africa slightly counter this reduction. Demand increase: The lion’s share of the increase in demand is coming from Europe, as it needs more LNG to wean itself off Russian pipeline supplies. China’s LNG demand is revised up slightly due to possible higher gas demand in the industry and power sectors amid a stronger government push for decarbonization. South Asia sees a big reduction in demand projections given the unaffordability of LNG prices in these markets. Delays in the commissioning of LNG import terminal projects in new or emerging markets are also a contributing factor to the reduction in LNG needs. Global LNG balance Russia-Ukraine war changes global LNG price and trade dynamics Spot prices: LNG price dynamics to change as Europe is no longer a balancing market JKM-TTF price evolution and potential US LNG imports into BNEF’s Europe Perimeter Source: BloombergNEF, CME, Bloomberg Terminal. Note: Europe here is BNEF’s Europe Perimeter and includes Northwest Europe and Italy. Europe's role as a balancing region for the global LNG market has shifted dramatically. As the continent looks to replace Russian gas, the function of being a balancing market is no longer viewed as the norm for Europe; instead, the market will see aggressive competition between the European TTF and Asian JKM price benchmarks to attract the necessary LNG. Europe's flexible LNG capabilities drove the TTF-JKM price spread in previous years. Those dynamics have now been challenged by market forces such as Russian supply cuts, minimal coal-to-gas switching potential in the power sector based on the current futures curve and mandates placed on gas storage build-up. Gas price volatility is expected to continue in the medium term. Contract supply: Flexible supply could grow by 54% from 2022-26 Flexible LNG supply refers to LNG supply available above destination-specific contract demand levels. BNEF assumes that destination-specific contracts will be given the highest priority from a plant and project’s perspective and will be allocated first. Portfolio players will then satisfy contract demand from customers that they have portfolio supply deals with. Thereafter, portfolio players are left with portfolio supply that is considered ‘flexible supply’. In addition, any excess production from LNG plants above contract commitment levels is also considered ‘flexible supply’ volume. Flexible LNG supply can be optimized by portfolio players and traders depending on Asian and European spot gas price spreads. These volumes are typically optimized geographically, sourcing from the closest supply source. Asian markets are largely contracted, but they do require spot and additional purchases to a certain extent. Flexible supply will be more important in meeting Europe’s increased LNG needs over the coming years. Flexible supply is expected to grow five times faster than total global LNG supply, at an average rate of 18% per year from 2022-26. Expiring contracts from Europe and the Americas are the main driver for this growth, freeing up supply in the Atlantic. Contracted demand from Asia, the Middle East and Africa is projected to remain relatively stable, growing a modest 3% over the period. Source: BloombergNEF. Note: ‘Others’ include demand from bunkering, new import markets and operational losses. Supply considers sanctioned projects as of May 2022. Northwest Europe and Italy are set to experience the biggest jump in LNG imports, adding 36 million tons worth of demand by 2026, compared to 2021. New terminals in Turkey and smaller European markets will increase their ability to import LNG. Ample regasification capacity in the Iberian Peninsula will help raise Spain’s imports, but gas demand faces headwinds from more renewables generation. Japan’s LNG demand is forecast to drop 30% from 2021 to 52 million tons in 2026, amid higher nuclear, renewables and coal generation. Meanwhile, South Korea’s LNG demand is expected to fall in 2023 due to lower gas demand for power coupled with nuclear capacity additions. The country’s LNG imports may level out after that as coal power plants retire. China could see LNG imports drop in 2022 due to severe omicron outbreaks and high import costs. However, China’s LNG demand is expected to rebound from 2023 onward as the pandemic is brought under control and coal-to-gas switching initiatives continue. South and Southeast Asia will likely see limited increases in LNG demand as high spot prices curb buying interest in these markets. JKM-TTF dynamics have drastically swung in favor of TTF. Which market holds a premium will largely be dictated by short-term demand factors, with Europe likely absorbing a major share of spot volumes – as evident with the current futures curve outlook. Highly price sensitive spot supply and flexible free-on-board cargoes will continue to arrive at the higher priced hubs. BNEF expects a major portion of total spot supply will make up European LNG imports based on the current futures curve, largely sourced from the US. The LNG consumption increase in Europe is effectively trying to push up an inelastic supply curve because LNG capacity additions are already slated for 2022-25. Regasification capacity is being added across Europe to expedite an increase in LNG imports. Under current market price views, LNG will continue to arrive in Europe at high rates. Global LNG demand: Fall in Japan-Korea-Taiwan market makes room for growth in Europe Source: BloombergNEF. Note: JKT is Japan, Korea and Taiwan. ‘Others’ includes Middle East, Americas, Africa, other Asian markets and bunkering. Figure is demand based on normal weather (10-year average) and current futures prices. Source: BloombergNEF. Note: Northwest Europe refers to France, the UK, Netherlands and Belgium. ‘Other Europe’ is Portugal, Poland, Lithuania, Greece, Malta, Sweden, Finland, Gibraltar, Norway, Croatia, Russia, Gibraltar and Cyprus. Global LNG demand in 2026 could reach 444 million tons, up 18% from 2021. Europe is expected to drive most of the LNG demand growth as the region aims to cut its dependence on Russian gas. China, and South and Southeast Asia could see LNG imports climb, but growth will be constrained by high spot LNG prices. The Japan, Korea, Taiwan (JKT) region is the only major market forecast to see a decrease in demand. Risks to Asian contracted demand are falling production at Southeast Asian projects and Australian outages. If output is unable to meet contracted demand, then Asian customers will need to resort to supply from outside the Pacific Basin. We anticipate that Asian demand can be fully met by supply from the Pacific Basin and the Middle East once Qatar’s North Field Expansion Phase 1 begins in around 2026-27 – this production is currently uncontracted but included in the flexible supply forecast. This will release more Atlantic Basin, particularly US, supply to satisfy demand in the geographically closer European market. Additionally, new project supply from Canada, Mozambique and Australia is largely contracted to Asian buyers, so Europe will get more flexible supply from the Atlantic. Global LNG supply: US becomes LNG powerhouse with 113 million tons of supply in 2026 Source: BloombergNEF, Bloomberg Terminal’s AHOY JOURNEY. Note: ‘MEA’ refers to Middle East and Africa, PNG refers to Papua New Guinea, Eq. Guinea refers to Equatorial Guinea, UAE refers to United Arab Emirates. Mauritania includes Tortue FLNG, which is on the maritime border of Mauritania and Senegal. Numbers are rounded. Global LNG supply is forecast to reach 460 million tons in 2026, up 19% from 2021. The majority of the growth is driven by a ramp-up of new projects, bringing a total of 93 million tons of supply growth in 2026 versus 2021. The US represents 41% of this increase. This is offset by an anticipated decline of 20 million tons, mostly from ageing plants. Growth is estimated to be largest in 2021-22 owing to new capacity and projects resuming from outages. Under construction: Countries showing supply growth are predominately a result of new projects starting, except for Norway. Calcasieu Pass, Golden Pass and newly-sanctioned Plaquemines in the US are responsible for the bulk of new projects slated to start by 2026, with a combined nameplate capacity of 62.5 million tons. Expansions and debottlenecking in Qatar, Nigeria and Australia also add to the growth outlook. Arctic 2 LNG is expected to drive growth in Russia, but the project faces significant sanctions risk, and first LNG production could be delayed. Operational: Decreasing gas output from fields supporting older facilities will reduce supply from these plants. The largest declines are set to come from Malaysia, Brunei and Algeria, whose plants have been operating for an average of 44 years as of 2022. Some projects such as MLNG Satu, Brunei LNG and Arzew LNG are expected to see falling LNG production due to maturing feedgas supply. LNG demand Russian flows: Increasingly difficult to predict, but also less necessary Source: BloombergNEF. Note: BNEF’s Europe Perimeter is Northwest Europe, Austria and Italy. Source: BloombergNEF Methodology: Russian pipeline gas flows are becoming increasingly difficult to predict, especially since President Putin’s decree that buyers of Russian gas should pay in rubles. Given the uncertainty over Russian flows, BNEF assumed a Russian flow profile until April 2023 before setting these Russian flows as a variable to be solved in our modelling. Hence, the Russian flow base case is a scenario which estimates the reliance of the European market on Russian gas. The analysis helps to ascertain if Europe might be able to halt these flows by a certain date, or by how much gas Europe would be short at current price levels and if flows were to be cut before that date. In order to do this, the resulting storage withdrawal profile had to be assumed to leave Russian flows to the BNEF Perimeter as the balance item to solve. For the storage profile shape, the seasonal monthly average net storage movements from October 2016 through September 2021 was taken. This was then used to solve for a Russian flow series that works with the remainder of the balance forecast to form a stable and repeating storage profile in which storage is at near maximum levels going into winter. The Russian three-pipe flow shown in the chart above is calculated to leave storage in BNEF’s Perimeter approximately 84% full at the end of December for a given year, assuming 90% full storage at the start of November based on the EU’s target. Russian three-pipe flows needed for western Europe fall to 13.8Bcm by 2026, which is below the 20Bcm of net exports to countries such as the Czech Republic and Slovakia needed from the BNEF Perimeter. Despite BNEF’s demand-side view being higher than REPowerEU, BNEF’s current forecasts suggest that Europe could do without Russian gas by perhaps as early as 2026. China: Pipeline imports growth to outpace domestic gas output and LNG imports Source: National Bureau of Statistics, China Customs, BloombergNEF. Pipeline import growth is set to outpace other sources over 2022-26, rising at 9.8% per year. The Power of Siberia pipeline is expected to reach its full capacity of 38Bcm a year in 2025, from 10Bcm in 2021. Central Asia shows more uncertainties. Uzbekistan could completely stop exporting gas to meet domestic demand, cutting around 5Bcm. Meanwhile, Kazakhstan may increase exports to 10Bcm by 2023, from 6Bcm last year, per the contract signed in 2018. However, deliveries could decline afterwards to prioritize domestic needs. In May, the Chinese government urged faster construction of the Central Asia-China Line D pipeline, which could add 30Bcm of capacity at the end of the five-year period. China’s LNG imports could rise above 100 million tons in 2026, with a compound annual growth rate of 5% over the next five years. Growth is expected to slow down significantly compared to previous years amid high import prices and tight LNG supply given the Russia-Ukraine war uncertainties. LNG imports in 2022 are forecast to fall 6% from last year, down to 74 million tons. Growth is projected to gradually pick up in later years as spot prices fall and new contracts start. Domestic gas production will continue to account for most of the gas supply in China. However, its share in the mix is likely to decline from 57% in 2022 to 52% in 2026, indicating the country’s growing dependency on imports. Domestic gas output is forecast to grow at 4.5% per year over the coming five years to reach 256Bcm in 2026. Increasing difficulty in ramping up production, both for conventional and unconventional gas, could slow down output growth. LNG: Spain, Turkey and smaller European markets to pull supply away from Northwest Europe Source: BloombergNEF, AHOY JOURNEY , Note: ‘Other Europe’ is Cyprus, Finland, Gibraltar, Greece, Lithuania, Malta, Norway, Poland, Portugal, Sweden and Croatia. Source: BloombergNEF, Projects of Common Interest (PCI). Note: ‘FSRU’ refers to floating storage and regasification unit. Competition for LNG will not only come from Asia and South America; demand from emerging European markets such as Greece and surrounding countries such as Turkey will also pull volumes away from BNEF’s modeled LNG Perimeter. Spain’s demand for LNG is expected to remain robust, averaging just above 16.5 million tons between 2023-25, with the Iberian Peninsula offering ample regasification capacity for offtakers. There is upside to this forecast if a Spain-to-Italy gas interconnector is built, as Italian shippers could use Spain’s higher import capacity to access LNG and import the required volumes. This was not taken into consideration for BNEF’s forecast, however, as this is only at the pre-feasibility phase. Other European countries like Greece, Poland, Croatia and Lithuania are forecast to see a strong rise in LNG consumption, as many will have to rely on seaborn deliveries to either replace Russian gas or to deliver regasified LNG to neighboring markets that imported large volumes of Russian gas. such as Bulgaria. This is also reflected in the amount of import capacity being built, especially in Greece, Turkey and Poland. LNG supply for other European markets is expected to top 18 million tons by 2026 and delivered LNG could near 12 million tons into Turkey by 2024. LNG imported into BNEF’s Perimeter will also likely be redistributed east during times of high supply. China’s regasification capacity is expected to skyrocket to 176 million tons per year. More Chinese players are likely to join the international LNG market as more terminals owned by non-NOCs (national oil companies) come online. BNEF expects more LNG contract signings in the coming years, whereas spot purchases could slow down. Spot LNG imports are likely to account for 7-15% of total LNG imports until 2024, compared to 30% in 2021. Source: BloombergNEF. Note: Terminal capacity is existing and under construction. Emerging Asia: Suffering from unaffordable LNG supply Source: BloombergNEF, BP Statistical Review of World Energy 2021 Source: BloombergNEF BNEF has revised down its 2025 LNG demand projection for South and Southeast Asia by 29 million tons, compared to the five-year outlook published in June 2021. Higher LNG prices are one of the key reasons for the lower demand projections. Pakistan, Bangladesh and Thailand have a much higher share of gas in their primary energy mix than other markets in the region. All three nations built their energy systems on cheap domestic gas. Falling domestic production makes LNG imports critical for these countries, but expensive spot LNG purchases will be difficult for these price-sensitives buyers over 2022-26. BNEF forecasts moderate to severe gas shortages could happen in Pakistan, Bangladesh and Thailand over the period given their strong gas dependency and high prices. Thailand is relatively less exposed to pricey spot LNG than Pakistan and Bangladesh, as the latter two have a higher share of LNG in their primary energy mix. The share of spot LNG in Pakistan and Bangladesh was roughly 40% in 2021, whereas Thailand’s spot share was 22% for the same year, based on BNEF analysis. India’s economy is less exposed to gas given its relatively lower share in the energy mix. However, high LNG prices could delay plans to raise the share of gas in the future energy mix. Investors have piled billions of dollars into the development of gas infrastructure, hoping to cash in on expected gas demand growth in India. LNG imports accounted for more than half of the total gas consumed in India in 2021. Signing new oil-indexed long-term LNG contracts could possibly help emerging Asian markets support the necessary growth in their LNG needs. LNG supply US: Venture Global’s plants lead new wave of capacity with record build times Source: BloombergNEF, Bloomberg Terminal’s AHOY JOURNEY. Note: Forecasts are as of May 31, 2022. Source: BloombergNEF. Only destination specified, reported contracts in 2022-26 shown, by regions. Cheniere includes Sabine Pass, Corpus Christi and portfolio. Note: Plaquemines refers to Plaquemines Phase 1. Operational: US LNG supply from existing projects is expected to remain stable through 2022-26. The base-case forecast assumes all US plants are running at near capacity given market conditions. BNEF projects an average 100% utilization for Cheniere’s plants in 2022-26. Cheniere received approval to raise exports by 720 million cubic feet per day (5.5 million tons a year of LNG) to non-FTA (Free Trade Agreement) countries in March 2022. Europe is mostly non-FTA. A third of Cheniere’s contracts have unspecified destinations, which can now be directed to more markets with the approval. Downside risk to plant feedgas supply from gas price volatility is low, as the major gas plays are deeply in-the-money at current prices. Under construction: Construction progress at Golden Pass is on track and first LNG production is expected in 3Q 2024. Qatar Energy offered Golden Pass volumes to Germany, but the parties are at loggerheads over destination flexibility and tenure of the contracts. Plaquemines LNG (Phase 1) reached final investment decision (FID) in May 2022, with first LNG slated for 2024. BNEF expects first production could begin in 4Q 2024 given its similar modular approach to Calcasieu Pass, which took 29 months from FID in August 2019 to first LNG. The majority of the supply is contracted to Chinese and European buyers. Plaquemines could reduce the impact of potential delays at other projects, such as Qatar and Mozambique, if delivered on schedule. Proposed: A number of US LNG proposals are gaining traction again, but BNEF’s high-supply scenario only pegs three projects that might add capacity before 2026 – Corpus Christi Stage 3, Plaquemines Phase 2 and New Fortress’s ‘Fast LNG’, which targets first LNG in 4Q 2023. Other proposed projects, including expansions at Cameron and Freeport, may only see production after 2026 and are not included in this scenario. See the FID Outlook section in this report for more. Russia (Atlantic): Sanctions could derail delivery of 29% of anticipated supply in 2026 Sanctions on delivery of critical processing equipment and technology application pose a huge risk to Russia’s LNG supply growth over 2022-26. Arctic 2: BNEF’s base case considers all three trains will come online, but with a delay. EPC contractor Technip Energies expects to fulfill its contractual obligations to the project while complying with sanctions. Linde, the project’s liquefaction process designer, announced it would suspend work on new Russian LNG projects, without specifying Arctic LNG 2. The liquefaction process is a largely immutable aspect of an LNG project, barring a redesign of the project. BNEF’s de-risked Russian supply assumes only Train 1 will be complete between 2024-26. Novatek reported 78% progress on Train 1 in February 2022, with all modules required for its gravity-based structures already delivered. Trains 2-3 could be delayed beyond 2026 due to sanctions on Chinese module fabricators and specialized shipping companies. Financing remains a moderate risk, as non-Russian funding makes up an estimated 48% of the project’s budget. With sanctions involving Russian banks and several stakeholders halting provision of funds, Novatek could seek alternative funding from Chinese or Indian buyers, who may want competitively priced contract supply given the current high spot prices. Source: BloombergNEF, Bloomberg Terminal’s AHOY JOURNEY (historical). Note: Portovaya LNG is excluded as it will likely support Russia’s domestic LNG demand. Source: BloombergNEF, Bloomberg News. Note: Risk analysis is BNEF’s assessment. Baltic LNG: Linde’s exit from new Russian projects could mean it might not continue work on Baltic LNG, which reportedly began construction in May 2021. Europe’s aim to end its reliance on Russian gas could erode Gazprom’s revenues, impacting the project’s funding as well as eliminating Europe as a prospective buyer of Baltic LNG volumes. The project has no buyers as of June 2022. Russia’s Wealth Fund could potentially step in to provide $12 billion toward the project. Yamal LNG: Stable supply is forecast through 2022-26, producing at an average of 15% above its nameplate capacity. However, Yamal is also exposed to sanctions, having declared force majeure on cargoes sold to Gazprom’s trading arm after it was seized by the German government. Trade flows of Yamal LNG are likely to change in the near term, depending on the Russia-Ukraine war situation. Global FID outlook: 133 million tons of new capacity waiting to be approved Source: BloombergNEF. Note: There are other projects proposed globally that are not shown on the map and include projects where developers announced FID targets between 2022-23. Potential FIDs include projects with targets that may go beyond 2023. NFE refers to Qatar’s North Field Expansion. Cheniere’s Corpus Christi Stage 3 expansion, Venture Global’s Plaquemines Phase 2 and New Fortress Energy’s Fast LNG in Grand Isle, Louisiana, are three proposed US projects that BNEF anticipates could be approved and make first LNG for the 2022-26 window. The modular design advantages of the three projects is what pushes them ahead. They could raise global export capacity by 22.8 million tons by 2025, if these projects are approved in 2022 or 2023. Corpus Christi, however, is the only BNEF top pick for FID in 2022, which would add 10 million tons of capacity; the other two might be later. Other projects that employ relatively traditional train design sizes may only come online between 2027-28, if green-lit in the next two years. BNEF categorizes these proposed projects as ‘wild cards’ and ‘potential FID’ projects, which make up a total 123 million tons of capacity. ‘Wildcards’ could reach FID in 2022, although some hurdles to project sanction remain, while ‘Potential’ candidates are more likely to reach FID after 2022. Many proposed US projects have revived commercial negotiations, driven by Europe’s desire to reduce reliance on Russian gas. Global energy crunch is making gas too pricey for Asia Global energy crunch is making gas too pricey for Asia This article was written by Stephen Stapczynski. It appeared first on the Bloomberg Terminal. A breakneck rally in Asian natural gas spot prices is forcing some importers to halt plans to buy additional shipments of the power plant fuel. North Asia spot liquefied natural gas prices are surging toward $40 per million British thermal units, the highest in over three months, on fears of a global supply squeeze, according to traders with knowledge of the matter. The benchmark is up nearly 70% so far this week and is at a seasonal high. Some Asian buyers are now unwilling or unable to procure LNG at current spot rates, instead choosing to wait for prices to come down before refilling inventories, according to traders. That risks leaving buyers short in the event of extreme weather or other major disruptions. Indeed, the market continues to be roiled by troublesome news that has kept the pressure on spot prices. Moscow tightened its squeeze on crucial pipeline gas flows to Europe this week, forcing nations to confront the prospect of no more Russian gas, while traders were stunned as a key US LNG export plant announced it will be shut for months after a fire. Traders fear that Europe will replace the lost supply with spot LNG shipments, leaving less fuel for Asia. Source: S&P Global; LNG Traders Intensifying global competition for a dwindling amount of available LNG through the rest of the year threatens to drive prices higher and push up electricity bills. A pause in spot purchases from price-sensitive buyers in Asia, such as India, could provide some relief to the market. China, the world’s top importer of LNG in 2021, has cut back spot purchases this year after virus restrictions eased usage. While demand is seen recovering by winter, China’s LNG importers don’t want to buy spot shipments at current prices, since they would make a loss when the fuel is sold into the much cheaper domestic gas market, traders said.
