A deep dive into what could sustain LNG prices “stronger for longer”

By Energy Connects

Sep 21, 2023

image is WOOD MAC Massimo

Massimo Di Odoardo, Wood Mackenzie’s VP of Gas and LNG, predicts prices are set to soften in the second half of decade as new supply comes onstream, but examines the broader future picture.

What is Wood Mackenzie’s current outlook for the global LNG market?

We think the LNG market is going to remain relatively tight through to 2025 before a new wave of LNG supply hits the market. There is already 175 mmtpa of LNG supply that has been sanctioned. As momentum continues for new FIDs, we anticipate an additional 40-45 mmtpa of FIDs through 2024, mainly from Qatar and North America. Projects will take time to get commissioned, but we anticipate more than 150 mmtpa of LNG supply will hit the market across 2025-29, or 37 mmtpa on average each year. This will result in yet another structural shift, bringing global gas and LNG prices further down through to 2030.

What are the risks to this view?

There are clearly many risks! Additional LNG FIDs, weak gas demand or a return of Russian pipeline supply to Europe present downside risks to how we see the market balancing. However, there are also risks that could drive the market into a “stronger for longer” price outlook. These include a possible ban on Russian pipe and LNG imports in the EU, stronger Asian and European gas demand, and delays in LNG supply developments. In a recent piece of analysis, we have used our proprietary global gas models to assess the implications of these risks on prices.

Which of these risks have the greatest potential in terms of higher gas prices?

These risks have different market implications and chances to materialise. Perhaps the most probable one is a ban on Russian pipeline and LNG imports in the EU, something that European governments are currently evaluating. In this scenario, our analysis shows that prices would trade above US$15/mmbtu through 2025. However, its impact could be short lived as the wave of LNG supply hitting the market thereafter would easily absorb the ~10 bcm supply shortfall, limiting price upside.

What could be the implications of higher gas/LNG demand in Asia and Europe?

Higher gas demand across Europe or Asia would delay market rebalancing and result in prices being sustained above US$10/mmbtu through 2028, before more LNG supply developments reduce price upside. Risks around demand for both Asia and Europe are related to the build-up of renewables and the developments of domestic supply and pipeline imports, where relevant. But while there is potential for demand upside compared to our current outlook, downside risks to demand are also possible, balancing the likelihood for upside.

What are the risks associated with LNG supply? And what are the implications?

Certainly, there could be more new LNG project FIDs compared to what we anticipate given current momentum. More projects could hit the market from 2027-28, resulting in a “lower for longer outlook”. But downside risks abound too. Projects currently under construction could face delays, in addition to what we have already factored in. Assumed FIDs could slip further. Start-up of Arctic LNG-2 and Mozambique Area1 might never happen in this decade.

Delays in LNG project commissioning could have long-lasting implications, particularly if more LNG supply is not brought to market, as we have assumed in this scenario. Prices could remain above US$12/mmbtu through 2030 as Europe and Asia compete for what could continue to prove limited supply availability. Just how well the commissioning of the upcoming wave of LNG supply will perform will be a key driver to watch for the LNG industry. The risk for further delays is real, as past waves of LNG supply have demonstrated.


Subscribe to our newsletter and get the best of Energy Connects directly to your inbox each week.

By subscribing, you agree to the processing of your personal data by dmg events as described in the Privacy Policy.

Back To Top