Energy Musings - October 23, 2025
A popular word in commodity markets is glut. It is used to describe future crude oil and LNG markets. Why isn't the same term used to describe renewable energy negative prices?
Glut Is A Four-Letter Word
I think everyone knows what a “four-letter word” is. They serve as a euphemism for words that are often considered profane or offensive. Words that relate to excretory functions, sexual activity, genitalia, and blasphemies. They were words your mother told you never to utter in public, and better yet, never say them. Depending on the mothers, speaking such words might result in a soapy mouthwash.
Currently, the term “glut” is being used to describe the global crude oil and liquefied natural gas (LNG) markets. The chart below, from The Crude Chronicles, shows the year-over-year change in oil inventories of the 38 developed countries that comprise the Organization for Economic Co-operation and the most recent projection from the Energy Information Administration’s Short-Term Energy Outlook, which has inventories increasing at a rate of 9% compared to its January forecast of only a 3% rate.
As Rob Connors, author of The Crude Chronicles, noted, the 2025-2026 inventory rate of increase would match the rates of growth experienced during the Great Financial Crisis in 2008, the OPEC oil price war with U.S. shale in 2025, and the COVID-19 pandemic in 2020. Connors shows numerous other oil industry and economic data suggesting that the forecast is likely overdone. (We will explore some of that data in another Energy Musings.)
Will OECD oil inventories rise as much as forecast?
Source: The Crude Chronicles
What if the inventory growth rate doubles the January forecast, but not triples the prediction? You would be looking at a peak more like 2022, 2018, and 2005. A 6% inventory growth rate would still be significant, but it would lead to a radically different outcome than the current consensus.
The International Energy Agency (IEA) predicts a surplus of four million barrels per day in 2026, which is expected to send prices into the $40s per barrel. Many other forecasters see the same situation developing. Additionally, the IEA states that OPEC has only four million barrels a day of spare capacity after returning much of its previously idled excess capacity to the market. Therefore, we find it interesting that OPEC has hired consultants to verify the productive capacity of its members, indicating that its policymakers are reluctant to base their output strategy solely on their members’ self-reported capacities. What if one or more producers do not have the surplus capacity they claim? That could drive forecasters to reassess their predictions.
Notably, the current OPEC spare capacity represents only 3% of global oil production, which puts a much tighter oil supply/demand balance merely one significant geopolitical or technical accident away from sharply higher prices. None of these short-term issues alters the longer-term reality that years of under-investment in new exploration and development could see the current production decline rates restoring market balance more quickly than anticipated.
The oil glut is not the only glut being tossed around in the commodity markets. The consensus is that a global LNG glut is likely to occur because the U.S. is building too many new export terminals and expanding others. They seldom mention Qatar’s LNG growth program.
Last year, Qatar announced its third LNG export capacity plan. This expansion will add 16 million tons per annum (mtpa) in 2029-2030, bringing the nation’s export capacity to 142 mtpa. The first expansion, currently underway, is expected to boost the nation’s output by 32 million tons per annum (mtpa) in 2026-2027. The second expansion targeting the North Field East would add 16 mtpa in 2027-2029. This represents a total expansion of 64 mtpa, an increase of 82%.
Because of the European Union’s Carbon Sustainability Due Diligence Directive (CSDDD), which requires companies doing business with the organization’s members to identify and address “potential and actual adverse human rights and environmental impacts in the company’s own operations, their subsidiaries, and, where related to their value chain(s), those of their business partners.” The Directive requires these large companies doing business within the European Union (EU) to develop a transition plan for climate change mitigation, aligned with the 2050 net-zero objective of the Paris Agreement, while also meeting the intermediate targets outlined in the European Climate Law. Companies subject to the CSDDD are those non-EU companies generating annual revenues of €450 million ($525 million) in the bloc. Failure to meet these targets or comply with the Directive will result in fines that can range up to 5% of a company’s global revenue.
Additionally, the companies must fund the costs of establishing and operating the due diligence process. Also, they will cover the transition costs, including expenditures and investments to adapt the company’s own operations and value chains to comply with the due diligence obligation.
The details of the CSDDD are about to be negotiated between EU member states and the European Parliament. It is expected that the final terms may be softened. However, in the past few days, the energy ministers of Qatar and the United States signed a letter to the EU denouncing the policy. Writers for the Financial Times reportedly saw the letter. The U.S. also noted that the enactment of the CSDDD policy could jeopardize the previously negotiated trade deal, which includes the pledge for the EU to purchase $750 billion in U.S. energy by 2028.
On Monday, the EU voted to phase out buying 19% of its gas from Russia by the end of 2027. The EU currently receives 16% of its gas from the U.S. and 4% from Qatar. Without Russian gas, the EU will look elsewhere for LNG supplies, necessitating the need to secure a significant new gas supply.
This future market change brings us back to the issue of the “impending” LNG glut. The U.S. LNG industry plans to more than double its export capacity by 2030, increasing from 11.9 billion cubic feet per day to 21.5 bcf/d by 2030. That is equivalent to roughly 100 mtpa of LNG cargoes increasing to approximately 220 mtpa. The chart from the Energy Information Administration shows the schedule of new and expanded terminal capacities that are expected to come online by 2030.
The U.S. looks to more than double its LNG export capacity.
Source: Energy Information Administration
We are not aware of many projects being constructed on speculation of future LNG sales. Because of the cost of these terminals, the financing requires that they be backed with offtake agreements sufficient to fund the repayment of the debt incurred.
In the fall of 2023, the International Energy Agency (EIA) projected that LNG supplies would increase by 45% by 2030, surpassing the agency’s forecasts for demand out to 2050. Therefore, they projected that LNG prices would drop by upwards of 80% by 2030 from the record prices in 2022. No doubt LNG prices were inflated by the natural gas supply crisis engulfing Europe in the wake of the Russian invasion of Ukraine. However, prices have declined since that peak. Here are two charts – one showing European natural gas prices and the other showing LNG prices in Asia.
European gas prices have fallen by more than 80% since 2022.
Source: Trading Economics
Asian LNG prices have returned to levels last seen in 2018.
Source: St Louis Federal Reserve, based on IMF data
We note that if you eyeball the price declines from 2022 for both data series, they have already met the IEA’s 80% decline prediction. What we don’t know is what the IEA’s forecasts for LNG demand will be in its next World Energy Outlook report. We understand that the agency has abandoned its Stated Policies Scenario (STEPS) and its Announced Pledges Scenario (APS) and is reinstituting its Current Policies Scenario (CPS). This change leads to the IEA abandoning its forecast of a crude oil peak by 2030 and calling for more oil to be needed in 2050 than is used today. What will it say about global natural gas demand?
One energy source that is already experiencing a glut but is never mentioned is wind and solar power. These energy sources deliver power when Mother Nature cooperates. While wind has a capacity factor of around 45% of its nameplate generation output, and solar is about 18%, there are times when these sources produce substantially more power than is needed. This requires that the surplus power be discarded if it cannot be used.
This situation presents a challenge for promoters who believe that we can operate the global economy on renewable energy and battery storage. Given the low capacity factors for wind and solar, achieving 99.99% delivery capabilities for the electricity grid requires building substantially greater nameplate capacity than is needed. That means that even more surplus power needs to be disposed of at times, resulting in a cost to consumers.
While this occurs in every market that installs renewable energy, reports from last year on the situation in Europe were particularly telling. The chart below, from a Financial Times story based on a report from consultant ICIS, shows how dramatically the number of negative price hours in Europe from January to August of 2024 exceeded those of previous years. Compared to 2023, the number of negative price hours increased by 22%. The increase compared to 2019 was 11.6 times.
More renewable power means more negative prices for developers.
Source: Financial Times and ICIS
The article cited power consultant Ember figures showing that Europe’s solar installed capacity had increased from 127 gigawatts (GW) in 2019 to 301 GW in 2024. Wind’s installed capacity rose from 188 GW to 279 GW. These figures are expected to be greater in 2025, as well as the hours of negative pricing. ICIS reported that negative pricing in 2024 resulted in hourly electricity prices falling to a negative €20 ($23) per megawatt-hour.
The business model of renewable energy drives negative pricing. The high capital costs of the projects that must be expended before any income is generated mandate that power be produced to the project’s capacity. Naomi Chevillard, head of regulatory affairs at SolarPower Europe, an industry group, was quoted in the Financial Times article saying, “The initial capex investment for solar projects and other renewables is such that they must keep trying to produce to seek that return on investment.” That is especially true because these renewable energy projects are financed with significant amounts of debt, and lenders prefer to receive their interest payments and loan repayments on time.
Negative pricing reflects the price cannibalization effect of renewable energy. Electricity prices fall when it is sunny and windy, and both renewable power sources are producing at the same time.
Bjarne Schieldrop, chief commodities analyst at Sweden’s SEB, summed up the dilemma for renewables and why their developers demand subsidies. “It’s akin to a hara-kiri,” he said. “Everyone knows that if you produce too much oil, the price will crash and producers lose money. And there’s nothing different in renewable energy and power either.”
So, why do we never see or hear the word “glut” when renewable energy is discussed? They often experience it every day. A renewable energy glut is actually worse for developers if they lack a subsidy scheme that shovels money to them, since they must pay consumers to take away the excess power their projects are producing. Negative power pricing and required subsidies are contributing factors to the rising cost of electricity. When gluts occur in crude oil and LNG, consumers benefit; however, this is not the case when subsidies distort the reduction in renewable power prices due to a glut in these markets.
It appears that the word glut will only be used to describe the problems of the crude oil and natural gas markets, and not what happens almost daily in renewable energy markets. Maybe it is time to ban the use of that four-letter word.