LNG prices should remain supported into the new year, even as new supply comes online.

Northern Hemisphere countries will need to replenish gas stocks for the 2025 cycle, maintaining upward pressure on prices. In the first half of 2024, spot gas prices in Europe and Asia were in the single digits, around $10 per MMBtu, but they climbed steadily in the latter half, reaching $15 per MMBtu, a 50% increase. This price surge was driven by three main factors. Firstly, a return to normal winter weather patterns, particularly in Europe and North Asia, drawing down European gas inventories from over 90% a year ago to about 70% today, reflecting a more typical seasonal pattern. Secondly, there was less new supply than expected in 2024. Only three LNG projects came online late in the year. Finally, the most significant change was the cessation of Russian piped gas supply to Europe on January 1st this year, even though they only accounted for about 5% of total European demand. What surprised many is that Russia was actually the second-largest LNG supplier to Europe last year, contributing nearly 20% of the continent’s imports. The EU plans to completely phase out reliance on Russian gas and LNG by 2027. Additionally, later this year, Europe plans to ban LNG transshipments currently occurring in France, Spain, and Belgium.

How does China’s LNG demand outlook shape supply strategies for major exporters?

China remains a focal point for LNG suppliers. In 2024, Chinese LNG imports rose about 9% to nearly 80 million tons, driven in part by the rapid adoption of LNG in transportation. However, China’s demand growth will be tempered by price sensitivity, especially as Europe becomes a stronger competitor for LNG cargoes. For exporters like the US, maintaining a balance between meeting European and Asian demand will be crucial in 2025.

How do you see the balance between spot and long-term LNG contracts evolving?

The longer-term outlook points to growing US LNG supply, and this is generally destination-flexible, allowing portfolio players to resell and ship cargoes to the highest bidder. This dynamic is expected to increase the volume of spot and short-term LNG transactions. Simultaneously, legacy contracts, such as those from Malaysia and Indonesia, will begin to roll off, likely resulting in more volumes being sold on a spot basis. This is because suppliers no longer need long-term contracts to finance liquefaction facilities. But while the market is moving toward more liquidity, long-term contracts will still dominate, especially in North Asia, where security of supply is a top priority.