Wood Mac:1. Continued short-term volatility looks assuredSofter...

Wood Mac:

1. Continued short-term volatility looks assured

Softer prices since the start of this year have turbocharged demand in key Asian markets. China is the standout, with LNG imports rising 28% year to date. Consequently, TTF is up 40% over the past three months, trading close to US$11/mmbtu. As the market grapples with supply risks from Russia and maintenance at Norwegian fields, record European storage levels are keeping a lid on prices.

Looking ahead, rising prices are likely to provide some headwinds to near-term Asian demand growth, but the overall outlook remains positive, increasing competition between European and Asian buyers. Limited LNG supply growth and the loss of Russian pipeline imports into Europe via Ukraine set the scene for 2025 to be tighter still. The consensus is for price volatility.

What are the risks?

The pace of LNG supply growth and demand across Europe and Asia all provide upside and downside risks. Uncertainty over Russian gas and LNG exports further muddies the waters, making 2025 a difficult year to call.

2. Supply growth ushers in a new price cycle from 2026

The sheer volume of new LNG projects under construction will be cheered by buyers following the turbulence of the past few years. With supply growth expected to average above 38 mmtpa between 2026 and 2028, prices will undergo a structural shift as Europe is called upon to absorb more LNG than required, even with Asian demand shifting up through the gears. But with European prices still holding north of US$7/mmbtu – and Asian prices correspondingly above US$8/mmbtu – the coming supply wave is far from catastrophic for the market. Our view is the need for US cargo cancellations to balance the market remains limited.

What are the risks?

A muted demand response to lower prices across Asia would undoubtedly draw out the market imbalance. Conversely, supply risks can’t be ruled out. An anticipated escalation of Western sanctions on Russian LNG threatens to dent our overall supply growth story, increasing the potential for a stronger-for-longer market.

3. Asia sets the scene for a fresh price cycle in the 2030s.

Almost 200 mmtpa of LNG supply may be under construction, but demand from the emerging economies of Asia is only just getting started. We expect a pressing need for additional supply beyond the current wave.

The timing of this new supply now looks less assured. Delays in US LNG investments - due to the DOE’s pause in non-FTA approval - and the time required to develop projects elsewhere will result in supply growth slowing significantly beyond 2029. Markets will respond, with European prices once again above US$9/mmbtu in 2031.

This won’t last for long. A new round of investments through to 2027 across North America, the Middle East and elsewhere results in over 100 mmtpa of new FIDs, with this supply hitting the market in the first half of the 2030s. With European gas demand falling rapidly by this time and Chinese LNG demand peaking, weaker demand growth triggers another cycle of low prices.

What are the risks?

Much will ride on long-term Asian demand growth. Booming power demand and a push away from coal makes gas and renewables the obvious choice. But if LNG prices are too high, Asia's most price sensitive buyers could quickly return to coal. On the upside, delays or cancellations to the expansion of Central Asian and Russian pipeline gas into China would push Chinese LNG demand higher for longer.