A wave of new LNG supply that’s expected to push global natural gas prices lower later this decade is likely to spur additional investments in floating storage and regasification units (FSRU) that could ultimately help to balance any glut.
FSRUs are faster to deploy than building larger onshore terminals to import liquefied natural gas and come at a far lower cost. The scramble to secure energy supplies since Russia invaded Ukraine in 2022 and upended global gas flows has increased utilization of the vessels, prompted orders for new ones and created long wait times for those in operation.
“It is evident that these vessels have been developed and deployed at a faster rate than in the past,” said RWE AG freight analyst Rupesh Mulwani. “The urgency brought on by recent geopolitical events has driven this accelerated pace.”
Russia’s decision to significantly curb its gas exports has the world poised for another big LNG supply cycle. Nearly 40 million metric tons (mmt) of LNG capacity is expected to come online annually between 2026 and 2028.
That would push the world’s liquefaction capabilities well north of 500 mmt/year (mmty) and far surpass each of the previous two supply cycles dating back to 2009. The market currently consumes about 400 mmty.
While the market is widely forecast to be out of balance in the second half of the decade, efforts to build more onshore and offshore import capacity are likely to help demand catch up.
Cheniere Energy Inc. Chief Commercial Officer Anatol Feygin said in May during the company’s first quarter earnings call that there is “a more flexible and diverse global LNG market more than ever before.” He said 1.2 billion metric tons/year of import capacity is currently available, with another 100 mmty under development “to ensure more efficient matching of supply and demand.”
Capitalizing On Cheaper Supplies
Asia and Europe are driving the global regasification capacity buildout, with additions of 390 mmty and 110 mmty, respectively, expected between 2022 and 2030, according to an analysis completed last year by Rystad Energy.
“Regarding the potential for further FSRU development if prices continue to fall, it's quite likely,” Mulwani told NGI. “The agility and speed with which FSRUs can be deployed make them an ideal solution to capitalize on cheaper LNG supplies.”
European investments in the space have been a big part of import growth in recent years, he added, and are expected to be a strong part of the market going forward.
More than 10 European countries, including Germany, the Netherlands, Finland, France, Croatia and Italy, have built or started developing regasification facilities since Russia invaded Ukraine.
In all, more than 26 projects with over 100 mmty of capacity are planned on the continent. Nearly 70% of the new capacity is slated to come from FSRUs, according to Rystad.
However, LNG demand is nearing its peak in Europe and buyers there could be over-contracted by 2030, according to the European Union Agency for the Cooperation of Energy Regulators. That has raised concerns about reduced utilization at FSRUs and longer-term overcapacity.
The vessels could ultimately be moved to Asia, which is expected to drive most LNG demand growth in the future.
Economic, political, financial and logistical issues have challenged structural demand growth in some parts of South and Southeast Asia, which are expected to drive much of the region’s growth. Projects in those nations have been canceled or delayed in favor of alternative energy sources, according to the Institute for Energy Economics and Financial Analysis (IEEFA).
IEEFA’s Clark Williams-Derry, an energy finance analyst, said questions remain about how much excess LNG can actually be absorbed by FSRUs in Asia’s developing nations.
“There’s sort of a mistaken notion in the gas-selling world that you can just kind of quickly ramp-up a gas-to-power project” without a pipeline network, demand centers or other developed infrastructure, he told NGI.
“In parts of the developing world, you have none of that,” Williams-Derry said. “Going from importing LNG to providing useful energy to some industrial or residential consumers is a heavy lift. These things don’t happen overnight. They take years to develop.”
Wild Card In Europe
Wood Mackenzie’s Massimo Di Odoardo, vice president of gas and LNG research, said infrastructure planning has proved difficult in some parts of developing Asia, but stressed too that FSRUs can help ease the process since they’re a faster alternative to land-based solutions.
He also said some existing structural demand will need to be met in the region as domestic production declines in some areas.
Moreover, Di Odoardo said the FSRU market is likely to remain tight for the foreseeable future. Like Mulwani, he expects lower prices to drive additional demand for new import vessels.
A lot of LNG will land in Europe as a result of the expected glut later in the decade, which is likely to keep FSRU utilization high, Di Odoardo told NGI.
“The value of these plants in Europe, we think, is still going to be in the money,” he said. “The theory that those players will be willing to offload those regasification terminals” to other importers in Asia “is going to be tested.”
Europe also has vast storage infrastructure onshore. It became a sink for supplies in 2020 amid a pandemic-induced natural gas glut that ultimately helped balance the market. The continent is likely to absorb volumes in a similar way during future surpluses.
“We take the view that LNG imports will start increasing again in 2026 as a consequence not necessarily of additional LNG demand, but as a consequence of Europe having to absorb some of this new LNG, certainly in the next few years,” Di Odoardo said.
Rystad Energy’s Xi Nan, head of LNG Research, told NGI that the firm expects European LNG import demand to remain above 120 mmty until 2030 and above 100 mmty through 2040.
If prices do fall significantly, another wildcard is how much demand returns in Europe, as some has been destroyed by higher prices in recent years.
Despite the bearish outlook for gas on the continent, Di Odoardo said LNG is likely to continue to play a strong role in Europe after 2030 as Norwegian supplies decline and North African volumes prove unsustainable.
