LNG prices that peaked in 2022 with the monthly average for the Asian marker at over $54 per MM Btu in August, and had then declined to $30.72 per MM Btu in December 2022, have now dropped to under $10 per MM Btu on average in May 2023 in a plunge that defied for the most part very bullish expectations just a few months ago, an LNG market follower said.

Image courtesy of Cameron LNG. Cameron LNG plant and terminal in Hackberry, Louisiana.

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But what perhaps may be of more concern to LNG producers is that by 2027 there will be a “tidal wave” of new LNG supply, said in an interview Clark Williams-Derry, analyst at the Cleveland-Ohio based Institute for Energy Economics and Financial Analysis.

“Projects that were started before the pandemic, combined with new ones rushed forward following Russia’s invasion of Ukraine, are likely to result in a major increase in new LNG supply from 2025 to 2027,” Williams-Derry said.

New LNG plants are under construction or projected as of 2023 in the “U.S., Qatar, Russia, Canada, Mozambique, Nigeria, Australia, Gabon, Senegal and Mauritania. These are all projects under construction. Some of them won´t be completed until 2027 or even after,” he said.

LNG prices had soared in 2022

LNG prices “were super high last year. There were a few days with trades where prices were over $100 per MM Btu of gas TTF,” he said. TTF is a reference to Title Transfer Facility, a pricing location within the Netherlands that is one of the most liquid in the continent and is often used as a reference for all of Europe.

The peak in the leading Asian marker in Aug. 2022 at over $54 per MM Btu “was caused specifically by the war in Ukraine” and those levels weren’t at the time the highest as prices in Europe would reach even higher levels than Asia. “European prices were generally higher,” Williams-Derry said.

Missed expectations in 2023

Some of the reasons behind perhaps why many market participants anticipated strength in LNG pricing in 2023 was that there was not “much new supply of LNG coming online around the globe” while Europe was also expected to continue to demand liquefied natural gas as it had done in 2022.

“Europe had proved already (in 2022) that it was willing to pay very high prices,” he said.

“The third reason was that there was an expectation that Chinese demand would rebound,” he added.

Why did LNG prices fell so fast?

“What happened was a variety of things,” Williams-Derry said.

In the case of Europe, both LNG and natural gas demand fell. “Gas demand actually fell more than what the market was anticipating,” he said.

Part of the reason was a mild winter across not just Europe but the northern hemisphere, he added.

“In addition, there were economic jitters in part related to the war but also about inflation, about higher interest rates that were keeping the economy in check,” he said.

Then “China has seen slower growth economy than they were anticipating,” Williams-Derry added.

Warmer weather and energy savings

Key for the reduction in global LNG prices was a reduction in demand, and prices, for natural gas in Europe.

“If you look across the board, demand for gas in Europe is now down about 20% compared to what it was from 2019 to 2021,” he said.

“It is partially again the warm winter, it´s partially Europe´s response to the war, and conservation because of the high prices. Prices were so high that the European economy found ways to cut on gas demand and it did so quickly,” Williams-Derry added.

On LNG project construction timing

“Even before the pandemic there were some projects that got the green light to go forward but they weren’t to come into service for another seven or eight years,” he said,  citing projects like LNG Canada or Golden Pass, in Louisiana.

“There was no real rush to get these projects into service during the pandemic, or even before, 2019 or even 2018 prices were so low that a lot of these projects were getting delayed,” he said.

But in 2022 there was this “little gap where there is not a lot of new supply coming online, and that coincided with the war, so there is basically a gap, caused by a market collapse in 2018, 2019,” the source said. LNG prices had been too low to encourage spending in new plant construction in preceding years, he added.

“In 2017 the price (per MM Btu) is down below $6 and then by 2019 you´re down to $4 or $5 for LNG and that is not a price where people can make a lot of money (…) so a lot of these projects were slowed,” Williams-Derry said.

So there was this “market cycle, adding very little new capacity in 2022-2023. At the same time there was a massive surge of demand in Europe. That combination made things go through the roof,” he added.

“But now with new projects we´re going to see a major increase in new supply 2025, 2026 and 2027,” he  said.

The U.S. has seen large investment in construction of LNG exporting capacity in recent years.

By Renzo Pipoli