Japan, the leading importer of liquefied natural gas (LNG), is warning about supplies getting tighter over the coming years due to competitive markets and underinvestment in supply.
As such, the shortage of these contracts can set the stage for conflict among nations to secure LNG deliveries. The absence of long-term contracts leaves buyers dependent on the more expensive and volatile spot market, where prices are trading roughly three times higher than that of the contracts.
Last year, around 30 percent of all LNG deliveries were through spot markets, according to an estimate by the International Group of Liquefied Natural Gas Importers.
The trade ministry document also pointed out that underinvestment in LNG export projects is a factor that will keep supply tight for several years. If the Russian pipeline gas supply to Europe is blocked completely, there could be a shortage of 7.6 million tons of LNG by January 2025.
Russia–European Union Impact
Beginning next year, buyers from Europe are set to increase LNG imports given the region’s tensions with Moscow. This will only heat up the competition in the LNG market. Europe is already competing with Asian buyers for LNG from Qatar.Until 2026—when some projects in Qatar and the United States will come online—the global gap between LNG supply and demand is not expected to ease much.
“U.S. supply is particularly price sensitive and will flow to the premium market, which Europe will remain unless Asian demand picks up,” analyst Arun Toora told Bloomberg.
“However the year-on-year increase is not sufficient to offset a total cut in Russian piped supply, with under half of these volumes met by LNG increases.” The European Union and the United Kingdom account for about 60 percent of American LNG supply.