Sopuruchi Onwuka

Global demand for cleaner energy and the recognition of natural gas as clean fossil fuel continue to present strong commercial incentives for greater investments in gas liquefaction; but experts point at looming danger of oversupply and consequent pull on prices.

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Industry advisory firm, WoodMackenzie, stated in its latest market analysis that the rising competition among gas exporting nations to capture greater share of the global LNG market continue to feed oversupply and consequent price drop in the market.

With rising gas reserves across the world and the emerging shift by international oil companies towards increasing gas investments, the agency noted, the rush to meet rising demand with abundant gas resources has seen numerous new liquefaction investments that already forecast oversupply in coming years.

“While new supply is undoubtedly required, scale and timing are everything. We are already forecasting a period of low spot prices over the next few years,” the company reported; adding that the bigger the oversupply and longer and deeper the price drop could be.

Woodmac stated that sudden price drops would affect existing Gas Sales Agreement that are tied to plant development while bringing good news for end-users buying at spot prices.

In laying agenda for the global gas industry which meets this week for Gastech 2025 conference in Milan, Italy, the firm posits that despite the emerging risks, new LNG still remains one of the hottest investments in energy.

In making case for new investments, the firm pointed at resilient gas demand in Europe where domestic production is declining, the plan by the EU o ban Russian imports entirely from 2028, and possible demand growth across Asia.

It argued that lower gas prices in Asian would help LNG’s affordability and kick-start the next phase of demand growth, while the regional supply gap would be exacerbated by South and Southeast Asia’s dwindling domestic gas production.

“LNG was also the ‘oven-ready’ solution for Egypt when pipeline imports were cut this summer,” the company pointed out.

“Buyers scouring the globe for new supply have few material alternatives to meet their future demand growth beyond the US. Other than Qatar, the other global heavyweight, LNG projects in the rest of the world lack scale and face ongoing challenges ranging from securing long-term gas supply, regulatory approval and high costs.

“Political considerations are a new factor, with US LNG offering barter potential to soothe trade imbalances with the White House, the agency stated as it explained why US would continue to lead gas exports in the short to log term,” it stated.

In pointing at associated commercial risks as more liquefaction plants come online, Woodmac noted that while developers of liquefaction projects are relatively immune to spot LNG price risk, lower traded prices pose a commercial challenge for offtakers.

“However, with LNG deals typically a 15–20-year commitment, offtakers will take a longer-term view. Even with a margin squeeze over the next few years, the market will rebalance and spreads between Henry Hub and TTF/JKM should put US LNG in the money over a contract’s life.

“Increased market volatility will amplify the opportunities for traders. US LNG offtakers might well face periods of low margins, which, in extreme cases could lead to cargo cancellations. But the maximum loss would only be equivalent to the contracted liquefaction fee. On the upside, there is no limit to profits achievable at times of higher LNG prices, as bountiful returns for some companies in recent years clearly demonstrated,” the company noted.

The company pointed out that IOCs have long been the biggest offtakers of LNG, noting that the contract flexibility and optionality of contracts are increasingly attractive to a growing pool of companies.

ADNOC and PetroChina International are among those looking to build material LNG trading portfolios, it stated.

Woodmac pointed at high volume supply risks pushing traded prices even lower than forecast.

Wood Mackenzie is the official knowledge partner for Gastech 2025.