European and Asian liquefied natural gas (LNG) pricing dynamics and geopolitical events will dictate both the volume and destinations of gas exported from U.S. and other North American LNG export terminals in 2025.
Traditionally the Middle East — principally Qatar — has met LNG demand from northeast Asia, while U.S. exports have been targeted at Europe.
Around 70% of Qatari LNG exports headed to Asia in 2023, according to the Middle East Institute, while 64% of U.S. exports headed to Europe, based on U.S. Energy Information Administration (EIA) data.
But U.S. and other North American exporters are increasingly targeting Asian markets, as shown by the number of recent Sales and Purchase Agreements (SPAs) signed with Asian buyers.
Source: Company Press Releases – Available via Evaluate Energy Documents
On top of the SPAs signed with Asian buyers listed above, LNG Canada is set to produce first gas this year. All gas is to be marketed by shareholders, which include Asia-based companies Petronas (Malaysia), PetroChina, Mitsubishi (Japan) and Korea Gas. Shell is also likely to target Asia with its own share of LNG Canada exports.
Demand Outlook
While European gas demand is expected to grow fractionally next year (around 0.1%), Asian gas demand is expected to grow by at least 1%, according to the International Energy Agency’s Global Gas Security Review.
When Europe has low buying interest, U.S. cargoes are more likely to head to Asia.
In Q2 2024, Asian price increases and the resulting premium over European prices triggered a reduction in European exports and an increase in exports to Asia. In Q3 2024, the spread narrowed and European imports rebounded.
This trend continued in the fourth quarter, with geopolitics and weather events triggering significant volatility in the European gas market.
The Dutch TTF contract for 2025 has risen from just under €36/MWh in September to €48/MWh in early December, causing at least 11 LNG carriers to divert from Asia to Europe in November.
Several factors are shifting demand towards Europe, which could continue to be relevant in 2025.
Speculation over whether Russian gas transit to Europe via Ukraine will continue after the deal expired in 2024 has contributed to volatility over the past few months.
Historical monthly volatility on the Dutch TTF month-ahead contract averaged 50% in Q1-Q3 2024, standing 34% above the historical average during 2010-21, according to the IEA.
With the Russia-Ukraine gas deal now expired, Russian piped gas supplies to Europe are expected to be around 530 bcf lower than in 2024, according to the IEA.
This will “drive stronger competition with Asian buyers for flexible LNG cargoes and lead to tighter market fundamentals,” according to the Global Gas Market Security Review.
Since January, U.S. exports to Asia were forced to travel via the Cape of Good Hope because of the suspension of LNG vessels through the Red Sea due to tensions and violence linked to the Israel-Hamas conflict.
This narrows the arbitrage window for such voyages to be profitable.
The spread between forward European and Asian prices for 2025 remains narrow, suggesting continued competition for U.S. cargoes from the two regions.
Until a wave of new supply comes online between 2025 and 2028 – plans for which were covered in our analysis last week – LNG supply will remain tight, leaving markets vulnerable to volatility because of both supply-and demand-side dynamics.
Risk Portfolio
The potential of a trade war between China and the U.S., if President-elect Donald Trump raises tariffs on Chinese imports, could trigger a fall in U.S. LNG exports to China, as happened in 2019 — and more cargoes flowing to Europe.
In the Middle East, a potential closure of the Straits of Hormuz due to geopolitical tensions in the area would have a huge impact on Qatari LNG flows, according to research firm Kpler Insights.
“If the strait were to close, this would effectively remove 20% of the world’s LNG supply and would have unparalleled consequences, considering there is no alternative route for vessels to take,” said Kpler, adding such an outcome is “highly unlikely.”
Conversely, mild winters, a renewed Ukraine gas transit deal, and continued peace in the Middle East could create a less tight LNG market and likely reduce the overall amount of gas lifted from North American terminals, with the bulk of volumes that are lifted heading to Europe.
Go West
Some North American LNG terminals, such as Altamira, LNG Canada, and Costa Azul, of which the latter two will ship their first LNG in 2025, will continue to target Asia, despite European pricing dynamics.
These West Coast terminals do not require carriers to move through the strategic bottleneck of the Panama Canal, allowing them to compete with Middle East supply on transport costs.
LNG Canada is also very cost-competitive, with a breakeven point of under US $10/kcf, according to data from the Canadian Energy Centre — compared to over US$10/kcf for most U.S. LNG projects — meaning it can undercut U.S. suppliers on both fronts when it comes to meeting Asian LNG demand.
An additional factor for LNG market flows going forward is the emergence of new demand areas, particularly Egypt, Brazil, India, and Bangladesh.
In a low-price environment these price-sensitive buyers could start to absorb any excess supply — with the U.S. most likely to supply Brazil, and the Middle East in pole position to supply India and Bangladesh. But in a scenario where competition between U.S. and Asian buyers is intense, flows to these importers will be reduced.
When additional U.S. and Middle East supply comes online after 2026, these new buying regions could serve an important role in providing a balancing function to the market. Joel Hancock of French Investment Bank Natixis said 2025 could be the last year of this elevated price global gas regime.
Read more:
North American LNG export capacity to double by 2028
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