After two years of intense volatility, the global liquefied natural gas (LNG) market has temporarily rebalanced, but this balance is fragile.
The "2024 World LNG Report" (hereinafter referred to as the "Report") released by the International Gas Alliance pointed out that after two years of severe shocks, the global liquefied natural gas (LNG) market has temporarily rebalanced, but this balance is very fragile, due to the increasing uncertainty of global LNG suppliers and the growth of LNG demand from emerging economies, resulting in a continued shortage of short-term backup supply.
Supply growth is slow
The report notes that the global LNG market currently has 20 export markets and 51 import markets, and in 2023, the global LNG trade volume increased by 2.1% to more than 401 million tons. The United States is currently the world's largest LNG producer and exporter, with an export volume of 84.53 million tons in 2023, an increase of 11.7% from 75.63 million tons in 2022; Australia ranked second, with 79.56 million tonnes of exports in 2023; Qatar ranks third, with 78.22 million tonnes of exports in 2023; Russia is in fourth place, with exports of 31.36 million tons in 2023.
Uncertainty in major LNG suppliers such as the United States and Russia poses challenges to supply growth. The International Gas Alliance said that the sanctions imposed by the West on Russia have led to the forced "delisting" of nearly 20 million mt/year of Russia's expected production capacity. At the same time, the United States suspended the approval of new LNG projects, which will lead to the "disappearance" of more than 70 million mt/year of new capacity.
In addition, shipyard supply bottlenecks are also a drag on the delivery of new LNG vessels. According to Clarkson, a shipping and offshore consulting company, the number of active shipyards in the world has dropped from 1,031 in 2008 to 371 in 2023 due to problems such as coastline approval restrictions, aging population and rising labor costs.
The International Gas Alliance expects global LNG capacity to grow to more than 700 million tonnes per year by 2030, driven by new and ongoing projects, especially in Asia, where demand is growing. However, most of the LNG production facilities currently in operation have been forced to be mothballed due to insufficient upstream gas production, which will still invisibly bring more potential risks to the supply side.
In an interview with China Energy News, Argus, an international energy and commodity price assessment agency, said that in fact, LNG production capacity is gradually increasing around the world, especially last year. Given the current global economic downturn, demand growth is likely to be lower than initially anticipated and may dampen future demand growth potential.
Reception capacity increases
Japan and South Korea saw a slight decline in LNG imports last year, followed by India, which has become the world's fourth-largest LNG importer, the International Gas Alliance noted. Europe, on the other hand, maintained its position as the world's second-largest LNG importer, with imports of 121.29 million tonnes. It is worth noting that nearly half of Europe's total natural gas imports are LNG.
At the same time, in Argus' view, China's LNG demand will maintain orderly growth in 2024, and demand from traditional importing countries such as Japan and South Korea will gradually decrease. Consumption in emerging importing countries in Southeast and South Asia will gradually rise, but it will take time to fully compensate for the decline in demand in Japan and South Korea.
CICC also believes that in 2024, China's incremental demand for LNG may be limited, and the growth rate of natural gas demand may be 5%-6%, and the increase in domestic gas production and imported pipeline gas will be enough to cover the demand growth.
In addition, the report shows that in the past 24 months, the global LNG receiving capacity has continued to grow, of which nearly 70 million mt/year has been added in 2023, which is the highest year of new receiving capacity since 2010. As of the end of February 2024, the LNG receiving capacity of 47 markets around the world has reached 1,029.9 million mt/year.
In 2023, Europe is the region with the largest increase in receiving capacity, with an increase of 30 million mt/year; This was followed by Asia, which increased by 26.9 million mt/year. The Philippines and Vietnam joined the list of LNG importers for the first time in 2023.
As the world moves towards a low-emissions future, countries are looking for ways to meet their climate commitments while keeping energy affordable, available and safe, according to the International Gas Alliance. Natural gas and LNG are undoubtedly important components of providing greater resilience to a rapidly changing energy system, which directly drives the increasing reception capacity of relevant countries and regions.
Supply exceeds demand and is difficult to change in the short term
In 2023, about 180 companies participated in LNG deliveries under fixed-term contracts, with about 35% of those transactions being spot pricing, the report noted.
In fact, LNG and its related industries are no longer the exclusive business of large companies, and the players are diversifying. Large traditional oil and gas companies in the Middle East, such as Saudi Aramco and Abu Dhabi National Oil Company, have been increasing their investment in LNG as a low-carbon alternative to crude oil and coal.
According to the International Gas Alliance, factors such as the increase in the number of market participants, more diversified sources, and the continuous acceleration of technological innovation have promoted the rapid development of the global LNG market. However, in the context of the overall tight supply side and the rapid growth of demand in emerging economies, it is difficult to reverse the situation of short supply in the global LNG market in the short term.
According to the International Energy Agency, global LNG supply is expected to grow by 3.5% in 2024, down from the 8% growth rate between 2016 and 2020. Issues such as delays in new facilities and tight gas supplies could push LNG supply growth into 2025, leading to significant price volatility.
Global LNG demand reached a record high in 2022 as the Russia-Ukraine conflict led Europe to ramp up seaborne LNG imports to replace Russian pipeline gas, with tight supply directly pushing up LNG prices.
Since 2023, the supply-demand imbalance has eased and prices have fallen due to the increase in new production facilities in countries such as the United States, as well as the reduction in demand for natural gas for heating in Europe and Asia. According to the International Gas Alliance, the annual average price index Platts JKM, the representative price index of the Asian LNG spot market in 2023, was $13.86/MMBtu, and the average annual price volatility decreased significantly from 2022.
On July 1, Argus ANEA (spot LNG delivery in Northeast Asia) was assessed at $12.52/MMBtu in the first half of the month, up 5.9% month-on-month but down 16.3% from the peak price in the winter of 2023-2024. According to Argus' forecast, LNG spot prices are expected to weaken by 2027 and then recover.
Original title: Global LNG supply and demand are in a state of "fragile balance".
Text丨Reporter Wang Lin