IEF – LNG Trade Dynamics and Market Risks, Nov 2023

The International Energy Forum (IEF) published a report discussing the dynamics and risks in the liquefied natural gas (LNG) trade. The report states that LNG markets are vulnerable due to geopolitical risks, which have become the main driver of changes in trade flows and investment in LNG. The invasion of Ukraine by Russia has had a transformative impact on natural gas markets. While gas balances have stabilized and growth has slowed this year, there are still numerous new and emerging risks. The report emphasizes the importance of dialogue between producers and consumers in order to address these market risks and ensure affordable and accessible energy during the transition to a low-carbon future. It highlights that global LNG trade reached a record high in 2022 and is projected to increase by another 25% by 2028, reaching 500 million tonnes per annum (mtpa). The growth is expected to be driven by the adoption of LNG for clean cooking and power generation, particularly through coal-to-gas switching. The Southeast Asia LNG market is expected to double by the end of the decade, with countries like Singapore, Vietnam, and the Philippines driving the growth. However, fuel affordability and international financial assistance will play a key role in realizing these prospects. The report also highlights China's emergence as the world's largest LNG importer in 2023, surpassing Japan. Although China's gas demand contracted in 2022, it rebounded in 2023, positioning the country as a major player in LNG imports. China's share of global LNG contracts is projected to rise to nearly 25% by 2030, bolstering Chinese companies' role in LNG trading. However, China's willingness to be a swing player in the future will depend on domestic priorities and energy security concerns. The report also discusses the structural changes in Europe's gas markets due to reduced Russian pipeline gas exports and an increase in LNG imports. LNG now acts as the baseline supply rather than a supplementary source, with LNG's share in EU gas demand rising to more than 50% in 2023. The United States has played a significant role in supplying LNG to Europe, accounting for 50% of EU+UK LNG imports in 2023. Over the medium term, Europe's regasification capacity is expected to increase by nearly 48% by 2030, enhancing buying security but with varying utilization of import terminals. Additionally, the report mentions the decline in Russian natural gas production and reduced Russian pipeline gas exports to Europe. China has become the largest destination for Russian LNG, and the future of Russian flows will depend on domestic and international policies. Western sanctions could impact investment in Russia's gas sector and hinder maintenance on LNG facilities, potentially leading to a reduction in Russian LNG flows and increased market volatility until new supply enters the market after 2026. Furthermore, the report highlights the significant increase in US LNG exports, making the US on track to become the world's largest LNG exporter in 2023, surpassing Qatar and Australia. Europe has become the largest market for US LNG, receiving 65% of total US LNG exports. The US is expected to continue being a key source of LNG export growth, with planned expansions increasing export capacity by 17% by 2025 and 67% by 2028. By 2030, North America is projected to account for the largest share of global export capacity, surpassing the Middle East and North Africa and Asia Oceania.