June 24, 2024 — Lackluster demand growth and a massive wave of new export capacity are poised to send global liquefied natural gas (LNG) markets into oversupply within two years. These two trends are developing even faster than anticipated.
Declining Russian gas supplies to Europe, driven by Russia’s full-scale invasion of Ukraine, caused a spike in European LNG imports that sent global prices to record highs. But despite modest new LNG export capacity additions in the last two years, prices have retreated from 2022 levels, largely due to falling demand from developed economies. (All prices in this report are in U.S. dollars [USD] unless otherwise specified.)
In Japan, South Korea and Europe—which account for more than half of the world’s LNG demand—combined imports fell in 2023 and will likely continue falling.
- In Japan, formerly the world’s largest LNG importer, demand fell 8% in 2023. Since 2018, Japan’s annual LNG imports have fallen 20%. A planned increase in nuclear and renewables generation—spurred by climate and energy policies, along with years of high LNG prices—will likely send demand even lower.
- In South Korea, historically the largest buyer of U.S. LNG, imports fell almost 5% last year. Long-term climate and energy plans in South Korea envision LNG imports falling 20% through the mid-2030s, as solar, wind and nuclear plants come online.
- Europe’s LNG imports stagnated in 2023, defying expectations of rising imports to replace lost Russian gas supplies. Europe’s overall gas consumption fell 20% in the past two years due to high prices, energy security mandates and climate policies. IEEFA expects Europe’s LNG demand to peak by 2025 and decline through 2030.
In emerging Asian markets, structural LNG demand growth faces a complex web of economic, political, fiscal, financial and logistical challenges. The global LNG crisis of the last several years heightened those challenges, spurring some Asian nations to reduce the role of LNG in their development plans and accelerate the development of alternative energy sources.
- In Southeast Asia, protracted timelines for new LNG infrastructure projects, plus the favorable economics of alternative energy sources, are likely to constrain LNG demand growth, particularly in Vietnam and the Philippines.
- In South Asia, LNG imports fell by 16% in 2022 but rebounded in 2023 as global spot prices fell. But two years of high prices and unreliable supplies triggered fiscal challenges and fuel switching. Pakistan, for example, announced last year that it would stop building new LNG fired power plants. Price declines will likely boost the region’s imports, but fiscal issues and competition from other power sources point to uneven growth in demand.
- In China, imports will likely increase as prices fall, but domestic gas production, pipeline gas imports, and policies favoring domestic energy industries could constrain structural demand growth and leave Chinese LNG buyers with a surplus of contracted volumes.
Even as the LNG crisis undermined global demand growth, high prices spurred an unprecedented flood of new supply, with LNG developers more than doubling the previously planned buildout of export capacity. IEEFA anticipates that nameplate LNG liquefaction capacity from projects that have already begun construction, or that are approved by financially capable backers, could add 193 million metric tons per year (MTPA) of new supply capacity from 2024 through 2028—a 40% increase in five years. (Note: One million metric tons of LNG is the equivalent of 1.36 billion cubic meters of gas.)
By the end of 2028, the world’s total nameplate liquefaction capacity could reach 666.5 MTPA. For perspective, the International Energy Agency (IEA) projects total LNG trade in 2050 to reach 482 MTPA under its stated…