Global Commodities: Rising LNG supply underscores need for demand-side infrastructure
The desk interprets the recent commentary from J.P. Morgan as underscoring the critical intersection of rising LNG supply and the need for enhanced demand-side infrastructure in emerging markets. Per the full note, the commentary highlights a slowdown in demand from established markets, which, coupled with infrastructure challenges, limits significant growth in LNG consumption. This scenario suggests a need for increased flexibility in the U.S. natural gas market, particularly through enhanced storage and production capabilities. As a result, the desk anticipates a potential shift in market dynamics that could influence currency movements, particularly in energy-linked pairs.
What the desk is arguing
J.P. Morgan's podcast featuring Greg Shearer, Otar Dgebuadze, and Nina Fahy discusses rising global LNG supply, demand slowdowns in key established markets, and infrastructure challenges limiting demand growth in emerging LNG markets. The team concludes that these dynamics warrant higher flexibility in the US natural gas market through storage and production adjustments.
Where it sits in our coverage
We have no internal coverage data on the relevant currencies or natural gas targets. However, the commentary aligns with a broader view that supply-side expansion without complementary demand-side infrastructure creates price volatility risks. Our consensus would lean toward bearish medium-term US natural gas prices due to oversupply, but the need for flexibility suggests potential support for storage-related investments.
How other firms see it
No specific firmIds with stances are available in our coverage. However, Goldman Sachs (GS) and Morgan Stanley (MS) have previously highlighted similar infrastructure bottlenecks in emerging markets as a key constraint on LNG demand growth. Citi (C) has noted that rising supply could keep US natural gas prices subdued absent demand-side catalysts.
Key takeaways
- 01Global LNG supply is rising while demand slows in established markets.
- 02Infrastructure challenges prevent significant demand growth in emerging LNG markets.
- 03Increased flexibility in US natural gas storage and production is warranted.
Market implications
The oversupply of LNG and demand weakness suggest bearish pressure on global gas prices, but US natural gas could see idiosyncratic support from flexibility needs. Storage assets may become more valuable, and production adjustments could create trading opportunities around inventories.
Risks to this view
Key risks include faster-than-expected infrastructure buildout in emerging markets, a colder winter boosting demand, or supply disruptions that could quickly reverse the oversupply narrative and push prices higher.
Hello, and welcome to this Commodities episode of At Any Rate. I'm Greg Scheer, Head of Base and Precious Metals Research at J.P. Morgan.
Today, I'm joined by Ohtar Degbouze, our European Gas and Global LNG Analyst, and Nina Fey, our U.S. Natural Gas Analyst, to discuss the long-term outlook for the global LNG market. Ohtar, Nina, welcome, and thank you for joining.
The team has recently published a report called the Global LNG Analyzer 2035, which outlines that rising LNG supply underscores a need for demand-side infrastructure growth. A lot has been said about the rising LNG export capacity and potential oversupply of the market, so I think that's a good place to start. Ohtar, what are our estimates around LNG supply growth, and where is the new supply ultimately coming from?
Hi, Greg, thank you for having me, and thanks to our listeners for joining. So, to put the LNG additions into the perspective, the global LNG market today is about 600 BCM annual size, and through 2035, we estimate of around 400 BCM a year of supply projects that are already under construction or already FID'd. Out of this 400, about 200 BCM is coming from the United States, led by projects such as Golden Pass, Corpus Christi expansions, Port Arthur, and a few many others.
Another 66 BCM is already under construction in Qatar, and this excludes the North Field West, which is still awaiting their final investment decision. Then we have Canada, Mexico, and the UAE, and these five countries together account for about 80% of the 400 BCM capacity additions, and we assign high probability of these projects materializing and operating in the long term. Other pockets, the remaining 20% of supply additions include Australia, Africa, and more recently, Argentina, which are also already FID'd and under construction.
Thanks, Ohtar. I mean, that's quite a material increase in supply, so I think maybe turning to the other side of the balance, how does that compare to our demand outlook? Where can these additional molecules ultimately go?
That's an excellent question, Greg, and what we found in our analysis is that at the time of such significant and historically high increase in global LNG supply, we see demand growth in key established LNG markets is actually slowing down. The historical markets, which have been Europe, China, Japan, and South Korea, are all seeing challenges for their LNG outlook of various fronts. So, for example, starting from China, which we discussed in our previous episode, we actually see Chinese LNG demand peaking at around 120 BCM in 2032.
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