U.S. liquefied natural gas projects will likely account for more than 70% of the new production capacity that will need to be sanctioned by the middle of the decade to satisfy demand by 2030, according to an outlook from Sanford C. Bernstein & Co. LLC gas analysts.
Bernstein predicted global LNG demand would grow to 400 million tonnes per year in 2022, a 6% year-over-year increase, stimulated by security and reliability concerns over Russian pipeline gas supplies following Russia's invasion of Ukraine. Their forecast called for global LNG demand to reach 575 Mt/y in 2030, an increase of 55% from current levels.
That would require 115 Mt/y of capacity additions to be approved by 2025, and potentially more if projects in Russia or Mozambique falter, the analysts said.
Europe appears to be on track to displace a planned 50 billion cubic meters of Russian gas with LNG in 2022, with LNG imports potentially rising by 44 Mt/y if they remain at the current pace, according to Bernstein.
"The U.S. can add liquefaction trains quicker than any other country, has proximity to Europe, and ticks all the right boxes geopolitically," Bernstein analysts led by Neil Beveridge said in a June 8 note to clients.
The research and brokerage firm said Europe's efforts to wean itself off Russian gas could increase the U.S. LNG export capacity that gets commercially sanctioned in the next two years to anywhere between 40 Mt/y and 80 Mt/y, doubling their initial projection. But Bernstein also cautioned that new LNG production capacity might not come online until 2027 or 2028.
U.S. LNG developers have benefited from a wave of commercial activity tied to current and proposed terminals in recent months, after a surge in spot prices since the fall of 2021 and Europe's push to replace Russian gas exacerbated tight market conditions. Some U.S. project developers that had struggled for years to sign the long-term contracts they needed to finance their projects, such as Energy Transfer LP and its Lake Charles export project in Louisiana, have built significant commercial momentum.
Venture Global LNG may have kicked off the next cycle of development for new U.S. LNG projects with its May 25 announcement of a formal final investment decision to build the first phase of its Plaquemines LNG export project in Louisiana.
For 2022, Bernstein warned of an "extremely challenging" outlook for the coming winter. European imports increased 53% year over year during the first five months of the year, while imports in Asia declined by about 7.6% year over year during the same period as a result of diverted supply. European gas storage is about 50% full, in line with the historical average, Bernstein said.
Asian demand could pick up in the second half of 2022 as China loosens its COVID-19 restrictions, putting pressure on global gas prices that have fallen to around the mid-$20/MMBtu range, Bernstein said. Bernstein said it expected the S&P Global Commodity Insights' Platts Japan Korea Marker, the benchmark price for spot LNG delivered to Northeast Asia, to reach $30/MMBtu by the end of 2022.
"We expect supply to remain extremely tight in the next two years," the analysts said.
S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.