Energy Musings - June 29, 2026
The reopening of the Strait of Hormuz is allowing shipments of Qatar and other Persian Gulf country LNG cargoes. However, a debate rages over the potential for a glut of LNG to develop.
Will The Global LNG Market Become Glutted?
Currently, there remains a shortage of liquefied natural gas (LNG) due to the closure of the Strait of Hormuz and damage to the Ras Laffen LNG complex in Qatar. Energy planners are worried about whether there will be sufficient LNG supplies as demand rises. However, the global LNG industry is on the cusp of significant growth in generation capacity, primarily driven by the United States and Qatar, and some forecasters are concerned the market could shift into a glut.
People may be surprised to learn that the global LNG industry only began in the 1960s and 1970s, and didn’t become a significant factor in the energy industry until the 2000s. In 1971, six countries were importing LNG from three exporting countries. By 2000, 11 importing countries were getting LNG from 12 exporting nations.
The business model in those early years was based on cooperative, bespoke, point-to-point, bilateral agreements. The point-to-point LNG trade routes were akin to “pipelines over water.” With contractual restrictions on cargo diversions, LNG supply routes were essentially fixed. It was impossible to allow LNG price discovery through the market due to the relatively fixed trade routes. In most cases, the long-term LNG contracts adjusted gas prices by indexing them to oil prices. This was rationalized by the 6-1 energy content ratio of oil to gas.
Asia dominated LNG demand during the early history of the global industry. The region accounted for at least 70% of total global imports between the mid-1980s and 2000. In Europe, the growth of regional gas production and pipeline imports from Russia, Norway, Algeria, and Libya meant that LNG accounted for a smaller role than in Asia.
The global LNG market has grown significantly over the past 60 years. Between 1964 and 1989, Algeria, Australia, Brunei, Indonesia, Libya, Malaysia, the United Arab Emirates, and Alaska (United States) began exporting LNG. Qatar joined the group in 1996, creating a nine-member LNG exporting group.
Trinidad & Tobago, Nigeria, and Oman began exporting LNG in 1999-2000. The exporting group expanded to include Egypt, Equatorial Guinea, and Norway in 2005-2007. Russia, Peru, and Yemen joined in 2009-2011. The group further expanded with Angola and Papua New Guinea in 2013-2014, the U.S. Gulf Coast in 2016, and Cameroon in 2017. The 21-member LNG exporter group added Mozambique in 2022.
The LNG importer group also grew during this period. By December 2020, 40 countries had imported at least 250 million cubic meters of LNG between January 2008 and December 2020. New importing countries joined the group: January 2021 (Croatia), April 2022 (El Salvador), December 2022 (Germany), April 2023 (Philippines), and May 2023 (Hong Kong). Three more countries (Antigua, Cyprus, and Nicaragua) began importing in 2024. There are now 48 LNG importers.
As the number of LNG-exporting and importing countries has expanded, the business model has evolved, especially since the United States began exporting LNG. U.S. LNG cargoes were priced off the Henry Hub gas pricing point, and their destinations (customers) could change. This allowed cargo owners to capitalize on market price distortions.
Between 2005 and 2022, the oil indexation of LNG prices fell from over 85% to 53%. Likewise, gas-on-gas pricing rose from just under 15% to 47%, then to 52% in 2025. We expect this trend in price-setting mechanisms to further shift the share of the global gas market that prices LNG based on competitive gas market dynamics. The International Gas Union (IGU), the global natural gas organization, produced a map illustrating the mechanisms driving gas price formation across nations worldwide.
The world is moving to gas-on-gas pricing for LNG.
The IGU calculates the annual wholesale price of gas for larger geographical regions in its annual reports. The chart below shows how stable the global average wholesale price has been between 2005 and 2025, except for the impact of the Russia/Ukraine war in 2022, which caused a significant energy crisis in Europe. The European wholesale gas price spiked to nearly $35 per million Btu in 2022. The gas crisis’s impact on European prices lifted prices across the globe, except the Middle East and the Former Soviet Union (FSU). Global prices have retreated in recent years. In 2025, the average global wholesale gas price was $5.31 per MMBtu, down from a peak of $9.45 in 2022.
LNG pricing was stable except for the Russia/Ukraine war.
Looking to the future, the great unknown is the volumes of LNG that can be shipped from the Persian Gulf following the reopening of the Strait of Hormuz. Qatar’s Ras Laffen LNG complex, the world’s largest LNG production facility, was shut down during the first week of the Iran war in February. Two of the 14 trains were hit by Iranian missiles, reducing the complex’s capacity by 17%. According to QatarEnergy, the operator of the complex, the repairs to the terminal could take up to five years.
Given the ceasefire and signing of the Memorandum of Understanding (MOU) between the U.S. and Iran to begin peace negotiations, which included the reopening of Hormuz. Reportedly, QatarEnergy has told LNG buyers that it plans to lift output to about 50% of capacity one month after safe passage through the Strait is restored. It expects to reach about 80% of capacity within two months. This is faster than people expected, but the complex kept several smaller units operating at low levels to supply local customers during the war. The timing of restarting liquefaction depends on how cool the tanks are and those of the LNG carriers looking to load cargoes. It can take as much as a month to bring the terminal’s temperature down to -162ºC (-260ºF) to liquefy natural gas. Another potential issue is whether there was further damage from the explosion at its neighboring facility, which extracts helium from the natural gas flowing through it.
We know from reports that several LNG carriers with Qatar gas have transited the Strait, and one or two empty carriers have entered the Persian Gulf to load cargoes. However, it will be months before a steady flow of LNG reaches customers, with Asian destinations receiving supplies sooner than European customers, given the shorter routes.
The absence of Persian Gulf LNG has benefited the U.S. LNG industry, which has brought new capacity online and shipped record volumes, with Asian and European buyers competing for cargoes. In April, the U.S. Energy Information Administration (EIA) forecast LNG exports rising by 1.9 billion cubic feet per day (Bcf/d) to average 17.0 Bcf/d this year. Exports are forecast to increase by an additional 9%, up 1.5 Bcf/d, in 2027.
Anne-Sophie Corbeau, a contributor at the Center on Global Energy Policy, recently wrote about U.S. LNG developers continuing to take Final Investment Decisions (FIDs) for additional capacity. She noted that Commonwealth LNG, with an annual export capacity of 9.5 million tons, took FID on May 15, and Delfin 1 FLNG (Floating LNG) took FID on June 3 for a 4.4 million-ton-annual-capacity project. That amounts to a roughly 1.85 Bcf/d additional LNG export volume when those projects begin operating.
The following chart shows the history of U.S. LNG export facilities and those sanctioned as of the beginning of 2026. The orange bar shows the Golden Pass terminal, which began shipping cargoes this spring. The Commonwealth LNG project in Cameron, Louisiana, is targeting production by 2030. Likewise, the Delfin 1 FLNG terminal is expected to be operational in 2030. This will be the world’s largest floating LNG terminal. Plans are for Delfin 1 to be followed by two similarly sized units. The three units will export 13.2 million tons of LNG annually. These projects will add to the total shown in the chart.
The U.S. is and will remain the world LNG leader.
Corbeau wanted to emphasize how significant the growth of U.S. LNG export capacity will be, so she related the total output (existing plus those with FIDs) to various gas market volumes. Total export capacity when all the terminals are operational will be 360 billion cubic meters (bcm) annually. That will be a twofold increase in U.S. LNG export volumes in 2025. It will be more than the European Union’s gas demand in 2025, and equal to 80% of China’s gas demand in 2025. Future U.S. LNG export volumes will be more than 60% of global LNG trade in 2025. Those relationships are shown graphically below.
U.S. LNG dominance to remain.
Based on research presented earlier this year, the U.S. love affair with LNG exports doesn’t stop with those projects that have taken FIDs. Compared with the 14.3 Bcf/d of LNG export volumes in 2024, sufficient projects have been identified to reach nearly 70 Bcf/d of U.S. export volumes in 2035. The question is: What is happening elsewhere around the world? Qatar has proposed further expansion of its LNG export capacity, but has the closure of the Strait of Hormuz jeopardized market interest in such additional capacity? On the other hand, potential LNG projects in Africa, South America, Canada, and Alaska could prove more attractive, as they would avoid shipping choke points.
However, there is a debate over how much LNG Europe will consume in the future, given its commitment to decarbonizing the continent. Under the European Climate Law, the European Union (EU) is committed to reducing its net greenhouse gas emissions by at least 55% by 2030. The ‘Fit for 55’ package of legislation makes all sectors of the EU’s economy fit to meet this target, which the EU believes will reduce gas demand by 30% (100 bcm reduction) by 2030, relative to 2019 levels. However, another plan, REPowerEU, builds on Fit for 55’s goals and sets more ambitious targets for renewable energy and energy efficiency, which would lead to an even larger reduction in gas demand.
ACER, the European Union Agency for the Cooperation of Energy Regulators, published a 2024 study noting a significant gap in gas demand forecasts between the Fit for 55 program and REPowerEU. If REPowerEU’s targets are fully met, gas demand in 2030 will be twice the reduction projected by Fit for 55, or 200 bcm. EU gas demand will shape the EU LNG import needs during the balance of this decade.
Europe believes it can cut LNG consumption.
ACER went on to examine how the EU’s LNG needs and its current long-term supply agreements will evolve if the REPowerEU scenario comes to pass. In 2030, the difference between Fit for 55 and REPowerEU gas needs in 2030 is 127 bcm.
Europe’s LNG glut will force it to sell its surplus elsewhere.
In ACER’s REPowerEU scenario, the EU relies slightly more than 40 bcm of spot LNG between 2023 and 2025. The dependence on spot LNG would decline to 11 bcm in 2025 and be nonexistent thereafter. The EU’s long-term contracted LNG volumes to date would exceed projected LNG supply needs. As a result, the EU’s exposure to spot LNG would be limited to balancing and scheduling adjustments.
The EU’s over-contracted LNG position would be between 30 and 40 bcm over the 2027–2030 timeframe. However, the EU’s LNG contractual surplus could be traded to other LNG markets, given the flexibility in current contracts.
ACER is not the only forecast calling for a reduction in European natural gas and LNG consumption. A study from the Institute for Energy Economics and Financial Analysis (IEEFA) also shows a decline in gas consumption and a gradual decline in LNG demand following a peak in 2025. The lower LNG demand comes as the continent’s regassification capacity grows, eventually to exceed the 2030 projected gas consumption.
More LNG capacity than gas use in Europe.
While Europe’s LNG demand is the focus of these two negative scenarios, this is not the only market for the gas. Shell plc’s LNG Outlook 2025 focused on its global use. It predicts that “Global demand for liquefied natural gas (LNG) is forecast to rise by around 60% by 2040, largely driven by economic growth in Asia, emissions reductions in heavy industry and transport as well as the impact of artificial intelligence.”
Asian economies are growing faster than European economies. European energy bills slow the latter. Increasingly, European industries are becoming uncompetitive globally, leading to job cuts and significant economic strain. There is also a push from environmentalists to get Asian countries, heavily dependent on coal for electricity generation, to switch to lower-polluting natural gas.
A highly controversial demand for natural gas in the United States, and expanding globally, is to power data centers for the burgeoning demand from Artificial Intelligence applications. Shell also identifies other markets where natural gas demand is rising sharply. Those include shipping and road transportation fuels, as well as decarbonizing heavy industry. Shell also notes that the LNG infrastructure might be used to import bio-LNG or synthetic LNG and repurposed for importing green hydrogen.
Shell’s report contained a series of charts showing the growth in LNG-powered vessels in the global fleet, and how the projected new vessels on order are also focusing on LNG power trains. The middle chart shows the growth in shipping’s LNG consumption, but, interestingly, it plots its forecast demand based on the company’s report from two years earlier.
The world’s shipping industry is turning to LNG for fuel.
As it relates to Europe and LNG, Shell’s report shows the supply gap the continent will face in 2030, which will need to be met by LNG imports. Shell is not as pessimistic (optimistic?) about the impact of the European Union’s climate policies on LNG demand as ACER or the IEEFA.
Shell sees Europe needing LNG in 2030.
What we know about all these forecasts is that they are wrong. Not wrong just because all forecasts are when produced, but because the global energy market, especially LNG, has been disrupted by the Iran/U.S. war and the closure of the Strait of Hormuz. Additionally, the explosion in data center investment is altering demand for natural gas, as is the push to decarbonize the global shipping industry and heavy industrial industries.
In Europe, the climate movement is facing increasing pushback because of its impact on residents’ cost of living and job prospects, while having little impact on reducing carbon emissions. The climate movement’s attacks on increased coal use to power electricity generation must acknowledge that renewable energy cannot meet the 24/7/365 electricity demand of data centers. Until nuclear power grows dramatically, natural gas is the least-polluting dispatchable energy source.
Given the many variables affecting LNG supply and demand, we will be looking for updated forecasts. We are not optimistic that they will be forthcoming soon, because they will require making many assumptions that might be quickly proven inaccurate, invalidating the projections. People should not forget that some of the projected LNG supply growth may not be built because of uncertainty about demand and, therefore, the economics of the terminals. Additionally, construction timetables can be adjusted to slow growth until exporters are more confident in LNG demand projections.
At the moment, there is no reason to believe that LNG demand will decline. The history of all energy sources is that they have increased over time. The reality is that there has not been an energy transition as promoted by climate activists. As the world’s population grows, people clamor for improved living standards and demand affordable, reliable, and clean energy. Natural gas and LNG fit that bill.