The global market for liquefied natural gas is vulnerable to major price swings and supply shortages that could last for years and force a near-term return to coal generation, industry executives warned Tuesday.
Speaking at the Gastech conference in Singapore, officials cautioned that global availability for liquefied natural gas on the spot market is likely to be limited through at least 2025, thanks to a rise in demand from the European Union that has pushed up price pressure for Asian buyers.
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EU leaders have taken drastic steps to curb their reliance on Russian fossil fuels in the 18 months since its invasion of Ukraine, including banning Russian oil imports and natural gas imports beginning in 2027.
Leaders passed a mandatory 15% gas consumption reduction agreement for member countries last year and have since passed a law requiring gas storage tanks be filled to at least 90% capacity before the start of the winter heating season to avoid a supply crisis.
"We have all of the right factors in place, but the price is very sensitive,” Uniper CEO Michael Lewis said in Singapore. “The price elasticity has changed. It is volatile, and the situation is potentially fragile.”
Although the EU met its 90% gas storage target earlier this summer, officials warned that the situation could worsen quickly if the continent does not experience the same mild winter as it did in the 2022-2023 season, which included a winter heat wave that shattered seasonal records in more than 15 countries and melted ski slopes, which were used in some cases as mountain biking trails instead.
"Temperature is the key factor that will probably cause a very significant price swing, but I think we will be able to cope with it," Lewis added.
Supplies for spot LNG remain limited, since contracts for the chilled gas are secured for periods between 10 and 20 years, and a sharp demand uptick could leave buyers scrambling.
In fact, even a normal winter could prove to be a “very difficult time for some of the Europeans, like Germany and other countries," said Freeman Shaheen, the director of Chevron’s global gas business.
Any demand recovery from China also threatens to upend conditions drastically and further risk a supply crisis. "I think we're all expecting them to wake up, and when they wake up,” Shaheen said of China, “it will be quite rapid. It just hasn't happened at that scale [yet].”
Added price pressure could also deter some Asian buyers, prompting them to swap out LNG for dirtier fossil fuels instead — primarily, coal.
"You're going to continue to see in Pakistan, to some extent India, to some extent China [they’ll] make choices not to take in LNG at these prices, and they'll use other fuels," Vitol CEO Russell Hardy told reporters.
Officials were more optimistic about LNG supply in the longer term, when the U.S. and Qatar are slated to bring new capacity online, boosting supply and easing price pressure.
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In the interim, however, they warned that the supply situation will be fragile.
"There isn't quite enough LNG to go around still, and if any of the possible negative side events of weather or supply disruptions do occur this winter, the volatility will return,” Hardy said.