A flood of liquefied natural gas (LNG) export projects due online worldwide in mid-decade will vie against lower-cost renewable energy and a revived nuclear power sector, which could rock gas prices and hurt some proposed projects, analysts say.
Proposed and approved new LNG plants would boost LNG supply by 67% increase to 636 million tonnes per annum (mtpa) by 2030 from 2021 levels, potentially saturating the gas market.
"There's over a trillion dollars of natural gas infrastructure being built in the world today. There's a set secular shift and natural gas that is here to stay," said Jack Fusco, CEO of LNG exporter Cheniere Energy at a conference in Houston last week.
In Qatar, a massive LNG expansion project will add 49 mtpa by 2027. U.S. projects could add 125 mtpa (16.4 billion cubic feet per day) of capacity by late 2027, according to data compiled by BTU Analytics, a FactSet company.
In a taste of the potential volatility those projects might face, LNG prices last year soared on European demand, then slid as storage filled and customers pushed back against the high prices and switched to other energy sources.
That shift is only going to accelerate. In 2021 alone, wind and solar's share of global power generation jumped to more than 10% from just 1% a year earlier, climate think tank Ember estimates.
At the same time, nuclear is rebounding: Japan aims to boost nuclear's share of its power to at least 20% by 2030 from less than 7% last year. France is proposing to build six nuclear reactors by 2035.
Analysts see LNG prices remaining strong until around 2027, but after that they may fall as the demand outlook is hazy.
"One big uncertainty the industry is focused on is how much damage the high prices has done to medium-term gas demand," said Michael Stoppard, who leads global gas strategy at S&P Global.
S&P Global pushed back its demand growth outlook for LNG from emerging markets by two years due to the spike in prices.
LNG has "acquired a reputation as a costly and unreliable fuel" that could jeopardize plans to build new import terminals in Asia, the region with the highest demand outlook, the Institute for Energy Economics and Financial Analysis said in a report last month.
China cut its LNG purchases by 20% last year on COVID-19 curbs and price volatility. India, Pakistan and Bangladesh also slashed combined LNG purchases by 16% last year, IEEFA said.
Projects at risk
In the U.S., gas markets saw a volatile start to the year after a relatively mild northern hemisphere winter and higher LNG prices which led to conservation sent U.S. prices below the cost of new production and led to a retrenchment in drilling.
Muqsit Ashraf, who leads Accenture Strategy, expects solid demand to support LNG prices through around 2027.
"What happens after that is more of a debate and depends on how investment decisions play out this year," said Ashraf, who previously headed Accenture's global energy practice.
Baker Hughes, a major LNG equipment supplier, warned in January that cost inflation and higher interest rates had slowed the pace of LNG final investment decisions.
Still, it anticipates "significant growth" in project approvals this year. The year's first came on Monday, with Venture Global LNG authorizing the second-phase of its 20 mtpa Plaquemines LNG project.
The risk is projects will come online just as demand growth slows and hit global LNG prices.
"When you hear people say 'there is no way we will overbuild this,' that's when things get over-built," said Alan Armstrong, CEO of U.S. gas pipeline operator Williams Companies which supplies gas to LNG exporters.
(Reuters - Reporting by Liz Hampton and Marianna Parraga in Houston; Editing by Sonali Paul)