(Oil Price) – The U.S. LNG export boom could soon face challenges by the end of the decade, both at home and on the international market.
Huge export capacity additions, mostly in the United States and Qatar, are set to tip the global LNG market into an oversupply as soon as next year, depressing prices and eating into the profit margins of the U.S. LNG exporters.
Domestically, the LNG export industry will have to increasingly compete with rising demand for gas for power generation in the United States, where natural gas is expected to meet part of the new power demand created by data centers and the onshoring of manufacturing activity.
Supply Boom
This year, American LNG developers began approving new project investments as soon as the Trump Administration lifted the pause on new LNG projects that was enacted by the Biden Administration.
So far this year, Australia’s Woodside has announced the FID for the Louisiana LNG project and plans to start production in 2029. U.S. LNG exporter Venture Global in July took FID and successfully closed the $15.1 billion project financing for the first phase of the company’s third project, CP2 LNG (CP2), together with the associated CP Express Pipeline. And top U.S. exporter Cheniere has made a positive FID for the Corpus Christi Midscale Trains 8 & 9 and Debottlenecking Project. Upon completion of CCL Midscale Trains 8 & 9, and together with expected debottlenecking and CCL Stage 3, the Corpus Christi LNG terminal is expected to exceed 30 million tonnes per annum (mtpa) in total liquefaction capacity later this decade.
Several other projects are expected to take FID this year and in the coming years, amid a growing pipeline of proposals.
“The more US LNG capacity that takes FID, the bigger the oversupply and longer and deeper the price drop could be,” analysts at Wood Mackenzie said earlier this month.
By 2030, supply from the top two LNG exporters, the U.S. and Qatar, will surge as several U.S. projects are set to start operations and Qatar’s biggest-ever LNG expansion will be completed by 2027.
Year to date, newly sanctioned U.S. capacity accounted for 95% of all FIDs, with Argentina the only other country to have a project reached FID, according to estimates by the International Energy Agency (IEA).
Between 2025 and 2030, a total of almost 300 billion cubic meters per year of new LNG export capacity is expected to come online from projects that have already reached FID and/or are under construction, per the IEA.
The agency noted that “This represents the largest capacity wave in any comparable period in the history of LNG markets” and excludes Russia’s heavily sanctioned Arctic LNG 2 project, which has started shipping fuel to China on vessels blacklisted by the U.S. and Europe.
With all the new supply coming on stream, the global market will tip from fairly balanced this year to an oversupply of almost 50 bcm next year, and a four-times larger glut of 200 bcm in 2030, according to LSEG estimates cited by Reuters energy columnist Ron Bousso.
Despite emerging risks such as price declines amid an expected global LNG oversupply toward the end of the decade, “US LNG is still one of the hottest investments in energy,” WoodMac’s analysts noted.
The U.S. LNG exports will benefit from growing global demand, WoodMac reckons. Moreover, U.S. LNG contracts will remain commercially attractive to offtakers on a long-term basis, while a growing number of investors want a slice of America’s LNG, which is broadening access to a deepening pool of capital, according to the energy consultancy.
The case for increased LNG exports remains solid—ample supply from U.S. domestic shale gas production, growing need for U.S. LNG, especially in Europe looking to ditch Russian gas by January 2027, and a ‘drill, baby, drill’ policy of the U.S. Administration supporting increased domestic oil and gas output and overseas exports.
U.S. Natural Gas Producers Win Big in Any Scenario
The coming global LNG glut could reduce profits for U.S. exporters in the medium term, but the rise in export capacity is set to raise domestic U.S. natural gas prices. The Henry Hub natural gas spot price will rise from an average of $2.91 per million British thermal units (MMBtu) in August to $3.70/MMBtu in the fourth quarter and $4.30/MMBtu next year, reflecting relatively flat natural gas production amid rising exports, the EIA forecasts.
The higher prices are likely to incentivize U.S. domestic gas production, which will be needed not only to feed LNG exports, but also additional gas-fired power generation amid rising power demand, due to the AI boom.
Natural gas producers will have demand for their output coming from both increased domestic gas-fired power and rising LNG exports. But the LNG industry could become a direct competitor of data centers for the U.S. gas supply.
By Tsvetana Paraskova for Oilprice.com
