Potential oversupply could be the biggest risk facing the global LNG market
The supply gap that has opened up in the global gas market since Russian flows to Europe were largely cut, and the shift in favour of fossil fuels in the US following President Donald Trump's return to the White House, have contributed to a flurry of new LNG projects being approved this year so far. But the pace of final investment decisions (FIDs) is causing concerns among senior industry figures.
The build-up of planned US LNG projects is accelerating "too quickly", TotalEnergies chief executive Patrick Pouyanne said at the firm's 2025 strategy and outlook event last week, adding that he would be surprised if all planned projects find investors and term customers. The rapid buildout of LNG export capacity leading to potential oversupply is the "biggest risk facing the industry", he says. Pouyanne's comments echoed concerns voiced by other senior industry figures who have recently expressed surprise at the pace of investment decisions. Five US LNG projects have reached financial close this year, with the 13.5mn t/yr second phase of the Port Arthur LNG export terminal being the most recent addition just last month. Four more projects are targeting a financial close by the end of this year, including the 9.5mn t/yr Commonwealth LNG terminal, Glenfarne's 4mn t/yr Texas LNG project, the first floating unit at the 13mn t/yr Delfin LNG project and possibly the 16.5mn t/yr Lake Charles facility.
The industry has seen this before. Price signals spur contracting activity that results in more investment in production, but the lag between those signals and new supply reaching the market often results in a mis-match between supply and demand, if not outright oversupply. Pouyanne was among the first to raise this issue as early as September 2023, when he projected the global LNG market could become oversupplied in 2028, even if demand grew at a sizeable 5pc/yr.
Earlier that year, oil services firm Baker Hughes chief executive Lorenzo Simonelli said the current investment cycle could be more durable and less sensitive to commodity price swings than previous cycles. But the flurry of FIDs may have been to some extent delayed by political influences, particularly former US president Joe Biden's pause on the issuance of new LNG export permits, which had put the brakes on contracting activity for many projects. Liquefaction projects may have instead received a boost from the current US administration, with Pouyanne implying now that some developments have probably been influenced by political pressure on Asian countries that sign LNG deals as part of their tariff negotiations with the US.
But two years on, global demand growth prospects have fallen well short of levels that could justify an LNG supercycle. Downstream demand in Europe shows little scope for a return to a durable growth pattern, even though the continent will undoubtedly remain dependent on seaborne supplies for the foreseeable future. Key Asian markets such as Japan and South Korea are bound to nuclear and coal-fired generation as key elements of their security of supply, which caps potential growth. And China, once hailed as the key source of incremental demand for the rest of the decade, has seen LNG import demand drop every month for nearly a year. Crucially, Beijing appears to be betting on more efficient coal-fired power rather than gas to complement rapidly rising renewable output.
Of course, abundant supply may mean lower prices that would spur more consumption in many large markets, and lead to different policy or investment decisions. But in the meantime, large portfolio players such as TotalEnergies are likely keeping an eye on their margins, because of the potential for lower prices at key global benchmarks at the same time as the US market appears poised for a much tighter balance — with the projected increase in feedgas demand far outstripping forecasts of domestic production growth.
