Rapid LNG Supply Growth Through Decade’s End Poses Price Risks: Wells Fargo By Investing.com

Investing.com — The global liquefied natural gas (OTC:) (LNG) market is poised for growth through the end of the decade.

According to analysts at Wells Fargo in a note dated Tuesday, the expansion of LNG supply, driven by various projects coming online, poses a substantial risk to global gas prices.

“We expect annual LNG supply growth to accelerate to 10% in 2026E and exceed 8% in 2028E and 2029E,” the analysts said.

This expansion is due to the completion of several large-scale projects globally, particularly in the United States, Qatar and Australia.

The US alone is set to add around 66 MTPA (million tonnes per annum) of new LNG capacity by 2030, further strengthening its position as the leading LNG exporter.

Historically, LNG supply growth has averaged 6% CAGR (compound annual growth rate) over the past two decades.

Future growth rates, while substantial, are not unprecedented, but represent a continuation of long-term trends. However, the concentrated growth expected in the second half of the decade could have significant implications for global gas markets.

The rapid increase in LNG supply is likely to put downward pressure on prices, particularly in the spot market.

Analysts at Wells Fargo suggest that as more LNG production capacity comes online, global spot prices may trend toward longer-term, usually price-linked, contract price indicators.

These long-term contracts typically price LNG at around 10-11% of Brent, but spot prices, which fluctuate based on local and seasonal factors, could see a reduction as supply outstrips demand.

In addition, growth in short-term and spot market trading is expected to increase as older, longer-term contracts expire. This shift could lead to a more volatile pricing environment, although the overall trend points to a moderation in prices due to oversupply.

Analysts at Wells Fargo highlight the various regional effects of rising LNG supply. The US, Qatar and Australia, the top three LNG producers, will dominate supply, while large traditional consumers such as China, Japan and South Korea will face competition from emerging markets such as Taiwan and India.

“Greater concentration among LNG suppliers and diversification among consumers could affect price dynamics,” analysts said.

The price elasticity of LNG demand varies from region to region. For example, China’s demand is moderately elastic due to its energy transition from coal to cleaner fuels and the availability of alternative sources such as Russian gas.

In contrast, Japan and South Korea exhibit relatively inelastic demand due to their heavy reliance on LNG imports and limited domestic energy resources.

In Europe, LNG demand is likely influenced by the need to replace Russian gas imports, which have fallen sharply since the invasion of Ukraine.

However, Europe’s recent investments in LNG infrastructure could lead to excess capacity, further reducing price volatility.

While the outlook for LNG supply growth is robust, Wells Fargo analysts warn that several risks could disrupt that trajectory. A major factor is the potential slowdown in US production, which has been a major driver of the LNG expansion.

If U.S. production growth slows, possibly due to increased domestic demand or environmental regulations, the expected increase in LNG exports may not be reduced, leading to tighter global supply and upward pressure on prices.

In addition, geopolitical factors, including regulatory changes and international trade dynamics, could influence the pace of LNG infrastructure development and the global supply-demand balance.