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.