Middle East War Set to Push Back LNG Glut by a Year, BNEF Says

The liquefied natural gas market will move into oversupply in 2028, a year later than previously forecast, as war in the Middle East and major project delays push back the emergence of a global glut, according to BloombergNEF.

(Bloomberg) — The liquefied natural gas market will move into oversupply in 2028, a year later than previously forecast, as war in the Middle East and major project delays push back the emergence of a global glut, according to BloombergNEF. After crossing into surplus, excess supply of the super-chilled fuel is expected to peak in 2031 to 2032 after multiple new projects come online, BNEF said in its global LNG outlook published Tuesday.

In its report a year earlier, it had forecast oversupply from 2027. That was before war broke out in the Middle East. The world’s largest LNG export plant in Qatar sustained damage from Iranian missile strikes, while shipments of the fuel via the Strait of Hormuz – a route that carried a fifth of the world’s LNG before the conflict – ground to a near-halt.

After a brief uptick in shipments following last month’s interim peace deal between the US and Iran, fresh hostilities in the region have effectively closed the strait once again and deepened uncertainty over when energy flows might return to normal. “Qatar’s output in coming years faces uncertainties from both existing and expansion projects,” BNEF analysts said in the report. Future supply growth will be determined by the repair timeline for the two production trains damaged during the war, as well as the startup sequence for the operation’s six North Field expansion trains, they said.

“Beyond engineering constraints, commercial strategy will also matter,” BNEF said. “Slower contracting after the Iran war could delay project rollouts, while QatarEnergy could leverage its low production costs to accelerate volumes and compete more aggressively with US LNG as the spot market enters a period of oversupply.” While geopolitical conflict will trigger “a temporary supply dip” this year from Qatar and the United Arab Emirates, total Middle Eastern supply is set to grow 50% to 147 million tons by the end of the decade, before climbing modestly to 153.8 million tons by 2035, the analysts said.

Asian LNG spot prices are likely to be supported through next year due to the war, as well as the risk of Europe missing its gas-storage refill targets. Prices are seen easing toward $8 per million British thermal unit by 2030, BNEF said. The longer that supply remains constrained and prices elevated, the harder it will be for emerging markets – particularly in Asia – to access the LNG they need to help their energy transition.

Meanwhile, the US – the world’s biggest LNG producer – is also set for massive supply growth of about 146 million tons per year through 2035. American exports “are likely to act as the market’s swing supply due to offtake flexibility,” the BNEF analysts said. While BNEF estimated global LNG oversupply of more than 100 million tons in 2031, it said the market “is unlikely to remain persistently oversupplied.”

Lower prices would eventually stimulate higher import demand, the analysts said, while also reducing utilization at higher marginal-cost liquefaction facilities, including in the US.