The recent record-high LNG spot prices in Asia highlighted the more stable prices of the gas for LNG buyers in long-term supply contracts compared to the much higher volatility in spot prices, says oilprice.com. However, long-term supply is indexed to the inherently volatile oil prices.
Global natural gas demand is set to return to pre-crisis levels as early as this year and will continue to rise in the coming years, thanks to the coal-to-gas switch in Asia, particularly China. The growing gas demand will drive more liquefied natural gas (LNG) consumption and trade, and producers are gearing up for a new cycle of final investment decisions (FIDs) on projects.
However, a possible new wave of strong investment in LNG could create a massive glut later this decade if most of the planned or proposed projects move forward, The Wall Street Journal argues.
Qatar already moved to claim LNG supremacy, approving last week what it says would be the world’s largest LNG project in terms of capacity, and likely the largest oil and gas project in terms of value to get the green light this year.
More projects apart from Qatar’s mega plan will be needed to meet the growing LNG demand, analysts say. But they also warn that a renewed rush to sanctioning LNG projects would leave the market with a supply overhang by the end of this decade.
Around 104 million tons per annum (tpa) of new LNG supply will need to move forward over the next five years in order to meet the 580-million-ton global oil demand by 2030, Rystad Energy says. However, the current proposed LNG capacity is ten times higher—at around 1 billion tpa. This proposed supply will be competing to secure buyers and attract investors, according to Rystad Energy.
New LNG projects will be sanctioned this decade after the shock in 2020 put many investments on hold. But those new facilities will have to not only compete with the low-cost high-volume Qatari gas, but also to show emission mitigation efforts in order to win the backing of investors and buyers.