LNG

Southeast Asian countries with historically low gas storage levels have resorted to panic buying of spot LNG cargoes. Analysts warn a “vicious feedback loop” could weaken domestic purchasing power and further exacerbate energy price inflation.

US-Israeli air strikes against Iran has exposed Asia’s vulnerability to imported LNG and the lack of energy self-sufficiency through domestically generated clean energy. China, India, Japan and South Korea account for 75% of oil and 59% of LNG flows through the chokepoint.

Indonesia is turning to LNG-fuelled power generation to ease its stalled coal exit, as international coal retirement efforts struggle. Tenders for small-scale LNG distribution are targeting 41 power plants with 2,148 MW capacity combined in remote regions, with operations expected from late 2026 to 2027.

The European Union could source 75-80% of its LNG imports from the US, up from currently 57%, if the bloc honours all its offtake agreements and its gas demand reduction efforts falter. Analysts warn of an overreliance on US LNG, deemed “the most expensive LNG for EU buyers.”

Exuberance in adding new LNG capacity makes the industry vulnerable to repeating the coal industry’s mistakes in 2010. Yet, consequences of an extended oversupply will be “more severe for the LNG industry as it is highly capital-intensive,” analysts warn.

Bearishness sentiment pervades in the Chinese LNG market as the nation’s gas demand continues to fall. “Unless imports are massively picking up in November and December, we might stay below 2023-levels,” warned Anne-Sophie Corbeau, global research Scholar at the Center on Global Energy Policy.

Construction of LNG terminals is slowing in Europe as gas consumption is forecast to fall by 15-20% between now and 2030. Germany has shelved some regas terminal projects while a French court ruled an FSRU at the port of Le Havre should be removed, partly due to low utilisation.

The EU is paying a premium price for LNG as pipeline gas imports fell 9% in the first half of this year. LNG imports cost around 26.9 billion Euros over the same period, with 13.7 billion Euros of that paid for US cargoes.

LNG use for transport is driving infrastructure investment in China, where the fleet of LNG-fuelled trucks nearly tripled over the past five years. Government data indicates, however, utilities liquefy enough domestic gas to meet trucking demand – while battery electric trucks are about to outcompete LNG-fuelled ones.

“China’s surge in LNG trucks will not last” and is likely to ease by 2030, Wood Mackenzie reckons. As battery technologies advance, electric vehicles are expected to displace LNG as the main threat to diesel – and demand for the dirty fuel is hence forecast fall from 2.3 million b/d in 2023 to 0.7 million b/d by 2050.

“LNG-powered trucks are gaining in popularity, but should only be seen as a bridging solution,” said Shiqing Xia, WoodMac consultant for Oils and Chemicals. “Investment in electric or hydrogen fuel cell trucks to respond to future market demands will not only help to meet environmental requirements, but could also give companies a long-term competitive advantage.”

Affordability issues

In India, the affordability of LNG is a main stumbling block – both for burning imported gas to generate electricity and also for combusting LNG as a transport fuel. The fertilizer, for once, consumes substantial LNG volumes in India though this demand largely hinges on government subsidies, handed out to keep low consumer prices.

Imported gas still costs too dear for the world’s emerging economies, Bloomberg finds, but analysts are optimistic that a supply surge starting from 2027 will bring down fuel costs in Asia.

Analysts question Shell’s bullish case for LNG market growth over the next 15 years. This year, the company increased its demand expectations to between 630 and 718 mtpa by 2040, some 1-5% higher than last year’s projection.

Dwindling demand for imported fuels

Yet, LNG demand has remained limited in sectors that do not receive fiscal support. According to IEEA analysis, global LNG prices would have to fall by half to compete in power generation, where gas provides less than 2% of the electricity mix.

“With the exception of China, natural gas consumption has grown mainly in countries that produce enough gas to either be self-sufficient or net exporters, like the U.S. By contrast, gas demand has tended to fall in markets that require large import volumes, like Europe and Japan,” IEEFA’s Sam Reynolds and Christopher Doleman commented.

Looking at Vietnam, downside risks get more pronounced: The country’s latest Power Development Plan initially targeted 22 gigawatts of LNG-fired power capacity by 2030, but a recent draft revision lowered the target to 18 GW due to slow progress.

Only one LNG plant with 1.6 GW of capacity has secured a power purchase agreement to date, and analysts fear that very few other projects may be operational before 2030. Factoring in fuel costs, it’s worth noting that Vietnam’s wind and solar generation now exceeds gas-fired power, which dwindled 45% over the past ten years.

Kpler data shows that the volume of LNG traded in 2024 grew by its lowest level since 2012 which makes analysts questions oil majors’ bullish stance on global gas demand. In fact, Shell’s latest LNG Outlook departs from previous arguments: It downplays LNG’s role in the power sector and no longer emphasizes claims that LNG can displace coal in Asia. Instead, Shell argues that data centres and AI will drive long-term LNG demand, though this remains uncertain.

Imports of Russian LNG into the EU have soared – regardless of sanctions – with most shipments headed to France, Spain and Belgium and a third of cargoes imported as spot trades. Analysts urge EU members states to prioritise on phasing out these flows.