RBC Capital Markets has stated that the largest liquefied natural gas (LNG) supply is about to come online, which will alter the global market and bring about extensive and enduring impacts.
Analysts at Royal Bank of Canada (RBC), including Anan Dhanani, anticipate that by the end of 2026, the supply influx could push the market into a prolonged state of oversupply, a situation that could persist until 2030, with prices potentially plummeting below double digits.
The Dutch Title Transfer Facility (TTF) futures, which serve as the benchmark for European natural gas trading, were traded at $12.78 per million British thermal units on the New York Mercantile Exchange on Wednesday.
This year, a growing chorus of analysts has warned that sluggish demand growth, coupled with the impending wave of export capacity, could lead to a severe oversupply in the market. As a series of planned infrastructure continues to flood the market, it remains unclear whether demand will increase to absorb each wave.
Oversupply and low prices highlight the bearish sentiment in the LNG industry. Suppliers are increasingly prioritizing LNG for shipping rather than arbitrage opportunities, which are profit margins.
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Commodity arbitrage involves buying and selling commodities in different markets simultaneously or sequentially to profit from price discrepancies.
According to data from RBC Capital, global LNG trade volumes have doubled over the past decade, growing from around 240 million tons in 2014 to over 400 million tons last year, primarily due to disruptions in natural gas pipelines from Russia to Europe. Some view geopolitical risks as market opportunities.
The investment bank expects that by the end of this decade, global liquefaction capacity (the total amount of LNG that can be produced annually) will increase by about 50%. RBC adds that the United States and Qatar will continue to maintain their positions as the world's largest oil suppliers, with their combined market share approaching 50% by 2030.
RBC analysts say that many private and state-owned entities plan to increase production capacity, "not only to support European consumption but also to capture the anticipated growth in consumption rates, especially in Asia."
However, demand in the Asia-Pacific region, the largest LNG importing area, is expected to grow at an average annual rate of only 5%. Approximately 70% of this growth will come from China, India, and South Korea.At the same time, despite escalating geopolitical tensions, there has not been a significant fluctuation in liquefied natural gas (LNG) prices. Woodside Energy's Managing Director and CEO, Meg O'Neill, described the market as "surprisingly calm."
"For me, this could be an indication that there are sufficient supply sources around the world that can help mitigate any temporary supply disruptions that might occur in the Middle East. This could be the case for both oil and liquefied natural gas," O'Neill told CNBC on the sidelines of the annual Singapore International Energy Week conference.
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