2024-04-29 22:04:03
Within two years, liquefied natural gas production could flood the market, according to a report from the Institute for Energy Economics and Financial Analysis. This explosion in supply should be accompanied by a lesser increase in needs. A cocktail which should argue for a drop in prices.
The addition of current production capacities to those currently under construction or approved for financing heralds a massive wave of LNG on the market. In figures, this could translate into an increase in global supply capacity of 40% in the next five years, according to the Institute for Energy Economics and Financial Analysisauthor of a report on the subject.
More than half of the new projects are located in Qatar and the United States, according to the International Energy Agency, a country which perfectly illustrates this craze for liquefied natural gas. The United States did not produce them before 2016but managed to become the world’s leading exporter last year.
Poor demand
In America as elsewhere, projects were boosted by two years of high prices, linked to the increase in European imports to compensate for the drop in Russian gas purchases. Prices which in return have affected the growth in demand, described as mediocre by the authors of the report, according to the IEEFA report on the global outlook for LNG 2024-2028, as if the large importers had been cooled by the prices and had relied as much as possible on other sources of energy.
Among key buyers, such as Japan, South Korea and Europe, LNG orders generally stagnated last year, contrary to expectations. For example, Japanese imports fell by 8% last year and by 20% in total since 2018. The trend is expected to continue, according to the report, due to the announced increase in nuclear production and development of renewable energies. South Korea, historically the largest buyer of American LNG, for its part plans to reduce LNG imports by 20% by 2030 to meet its climate objectives.
Prices that look more attractive
In emerging Asian markets, fundamental demand growth faces a multitude of challenges, budgetary challenges, and also delays in the construction of LNG infrastructure. For economic and strategic reasons specific to each State, future import levels are therefore very uncertain in Vietnam, the Philippines, Pakistan, but also in China, according to the IEEFA.
This context of imbalance between supply and demand should attenuate prices and make them more attractive, but according to the authors of the report, not enough for the most difficult economies in Asia. These prices are also likely to be pushed up again by an escalation of the conflict in the Middle East, warns the World Bank in its outlook on global commodity markets published last week. 20% of global trade in liquefied natural gas passes through the Strait of Hormuz recalls the institution, which specifies that “ if LNG supplies were interrupted, fertilizer prices would also increase significantly » with a potential impact on the price of food.
Also read: Why is natural gas considered a “transition energy”?
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