LNG Hot Air: Financial Analysts Say Next Decade Facing Oversupply

gdeep3
5 days ago
2 min read

LNG which was once the flexible bridge fuel of the energy transition, is now possibly the next oversupplied commodity. A new report from LSEG shows a risk of oversupply for the global LNG market. If many of the projects that have not reached a final investment decision (pre-FID) are built, global liquefaction capacity could grow at about 8.1% compound annual growth to 2035 far faster than expected demand. In short, the market is facing long-term oversupply, according to LSEG .

Source: LSEG

Why This Matters

LNG has been called a “bridge fuel”, a way to move away from coal and oil while renewables scale up. But if the market is flooded with new capacity, three things can happen:

LNG Prices Staying Low: This is making projects’ forecasted returns less reliable and investments in the sector risky.
Project Finance Drying Up: Banks and investors may refuse to fund plants that are likely to be unprofitable.
Political Risk Increasing: Governments that back big fossil projects risk stranded assets — infrastructure that becomes obsolete before it earns back its cost.

In today’s energy market, the winners are buyers who can get gas at cheaper spot prices and countries that have flexible systems for importing it. The losers are developers working on late-stage projects without strong contracts and investors who expect gas prices to stay high.

Policymakers should not assume gas demand will always increase; instead, they should balance energy security with clean energy investments. Investors need to test their projects for the risk of low prices and new carbon rules, and make sure they have solid contracts. Utilities and gas buyers should look for shorter, more flexible deals and keep the door open for low-carbon fuels in the future. Developers should build their projects in stages, use modular designs, and plan to adapt their facilities for hydrogen or other future uses.

Action Items

Investors: Forecast scenarios with declining profitability as the LNG sector faces possibly too much supply and too little demand.
Analysts: Conduct scenario analysis on supply and demand forecasts.