Liquefied natural gas (LNG) storage units.
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RBC Capital Markets says the largest supply of liquefied natural gas (LNG) is about to come online, changing global markets with widespread and lasting impacts.
“Given the growing interconnectedness of gas markets in the Russia-Ukraine post-conflict region, a new wave of LNG supplies – the largest to date – will reshape global markets in the coming years, with an impact that will be greater than before The growth is more extensive.
Analysts such as RBC’s Anan Dhanani predict that supply injections could push the market into a state of chronic oversupply by the end of 2026 that could last until 2030, with prices likely to fall. Breaking double digits.
Futures on the New York Mercantile Exchange’s Netherlands Transfer Facility (TTF) center, Europe’s benchmark for natural gas trading, were trading at $12.78 per mmBtu on Wednesday.
This year, a growing chorus of analysts has warned that tepid demand growth, coupled with an impending wave of export capacity, could lead to a serious oversupply in the market. As a slew of planned infrastructure continues to flood the market, it’s unclear whether demand will increase to absorb each wave.
Masanori Odaka, senior analyst at Rystad Energy, said oversupply and low prices underscored the pessimism in the LNG industry. Suppliers are now increasingly focusing on LNG for transportation utilization rather than arbitrage opportunities, i.e. profit margins.
Commodity arbitrage involves buying and selling commodities simultaneously or sequentially in different markets to profit from price differences.
Global LNG trade volumes have doubled over the past decade, from about 240 tonnes in 2014 to more than 400 tonnes last year, largely due to disruptions in Russian pipeline gas to Europe, according to RBC Capital. Some see geopolitical risks as opportunities for markets.
The investment bank expects global liquefaction capacity (the total amount of LNG that can be produced annually) to grow by around 50% by the end of this decade. RBC added that the United States and Qatar will remain the world’s largest suppliers, with a combined market share approaching 50% by 2030.
Analysts at Royal Bank of Canada said that many private companies and state-owned entities plan to increase production capacity “not only to support European consumption, but also to achieve the expected growth in consumption rates, especially in Asia.”
But demand in the Asia-Pacific region, the largest LNG importer, is expected to grow by an average of only 5% per year. About 70% of this growth will come from China, India and South Korea.
Meanwhile, LNG prices have not fluctuated significantly despite rising geopolitical tensions. Meg O’Neill, managing director and chief executive of Woodside Energy, described the market as “eerily quiet”.
“To me, this is perhaps a sign that there are enough supply sources around the world to help mitigate any temporary supply disruptions from the Middle East. That may be true for both oil and LNG,” O’Neill told CNBC on the sidelines of the meeting. Annual Singapore International Energy Week Conference.
The LNG industry also faces other looming challenges that could impact global markets. The International Energy Agency pointed out that the northern hemisphere winter of 2024-25 is coming, and Russia’s existing contract to transport natural gas to Europe through Ukraine will expire at the end of 2024.
“This could mean stopping all pipeline gas flows from Russia through Ukraine to Europe.” The International Energy Agency wrote in a recent report. “This in turn will require increased LNG imports from Europe next year, leading to an even tighter global gas balance.”
