Natural gas the reconfiguration of the market

In the years since 2019, the international market for natural gas has seen exceptional turbulence that has reshaped trade flows, introduced new pricing dynamics, and transformed Europe’s position in the global gas market.

 

 

COVID-19 and record low prices

According to the Energy Institute Statistical Review of World Energy, in 2024, global gas production and consumption totalled 4,126 Bcm, of which 593 Bcm (14.4 percent) was traded internationally via pipeline (excluding cross-border flows within the EU+UK market) and 544 Bcm (13.2 percent) was traded internationally in the form of LNG.

International trade in pipeline gas is inherently regional, characterised by a small number of exporters supplying their neighbours within a given region. In Europe (EU-27 plus UK, Switzerland, and the non-EU Balkan states), these pipeline imports are sourced from Norway, Russia, Azerbaijan, Algeria, and Libya.

By contrast, the LNG market is global. In 2019 it was characterised by three factors: 1) rising supply, 2) North-East Asia as a premium market, and 3) Europe as the “balancing element” of that global market, taking LNG when it was commercially attractive and turning it away when it was not.

The rising supply of LNG into the global market in the years preceding 2019 were mostly due to growth in exports from the United States, Australia, and Russia. Exports from those three countries grew from 52 Bcm in 2015 to 187 Bcm in 2019 (+135 Bcm), while exports from the rest of the world grew by just 11 Bcm in the same period. In 2017, 2018, and 2019, global LNG exports grew by 10-12 percent per year. By comparison, annual LNG export growth in 2012-2015 had averaged just 0.3 percent.

The LNG importing countries of North-East Asia (Japan, South Korea, Taiwan, and Singapore) are significant consumers of natural gas but have no production of their own and (aside from Singapore’s pipeline imports from Indonesia) have no pipeline import supply. Their strong dependence on LNG imports made buyers in these markets willing to pay a premium price in order to secure supply. For this reason, the region has long been considered a “premium market”.

By contrast, in the years leading up to 2019, Europe was considered the “balancing element” of the global LNG market. Europe had access to substantial supply from its own production and pipeline imports from neighbouring countries, demand-side flexibility in terms of switching between coal and gas in the power generation sector, and substantial seasonal gas storage capacity. When LNG was expensive, European gas demand would decline as a result of gas-to-coal switching, Europe’s need for LNG would diminish, and LNG cargoes would be diverted elsewhere. This was the case from January 2011 to January 2017, when Asian prices held a significant premium over European prices. In 2017-18, LNG accounted for 10-11 percent of European gross gas supply (production plus imports).

 

When LNG was cheap, the European market could absorb more LNG supply either for coal-to-gas switching in the power sector or for injection into seasonal storage. This occurred in 2019, when global LNG supply rose more rapidly than demand, prices fell, and Europe ramped up its LNG imports to a record 104 Bcm—roughly twice the volume of imports in 2017 and 2018, and well above the previous record of 80-81 Bcm in 2010-11. In 2019-21, LNG accounted for 18-21 percent of European gross gas supply.

In 2020, as industrial activity slowed amid the COVID-19 pandemic and associated lockdowns, year-on-year growth in global LNG demand fell to just 0.6 percent. In Europe, the combination of lower demand and lower re-exports to Ukraine was balanced by a combination of lower production, lower pipeline imports from Russia (which had reached a record in 2019), and lower LNG imports. In 2019, Europe had performed its role of the balancing element of the global market by absorbing volumes from a well-supplied market. Its inability to absorb even greater volumes in 2020 tipped a well-supplied market into oversupply with the result being record low prices. 

 

 

Rebound and invasion of Ukraine, record high prices

This situation changed rapidly in 2021. The year began with cold weather in North-East Asia that caused a spike in gas demand. LNG cargoes were diverted from Europe to Asia as Asian prices rose to a premium above European prices. To compensate, Europe drew heavily on its seasonal gas storage stocks. As 2021 progressed and industrial activity increased following the end of COVID lockdowns, LNG demand rebounded. However, global LNG supply grew only modestly, due to a series of unrelated curtailments at LNG export plants around the world. This caused the global LNG market to tighten “in the summer of 2021, and prices began to rise,” with the rise accelerating at the start of Q4-2021.

In Europe, gas consumption had fallen from 485 Bcm in 2019 to 473 Bcm in 2020 but rebounded to 490 Bcm in 2021. On the supply side, European gas production continued to decline and pipeline imports from Russia did not rebound but actually fell below their 2020 level, although pipeline imports from Azerbaijan and Algeria increased. This tightness on the global LNG market caused European LNG imports to fall in 2021, farther tightening the European market.

In February 2022, Russia launched its full-scale invasion of Ukraine and Russian pipeline supply to Europe fell dramatically. This lost supply was balanced by a combination of lower demand (suppressed by high prices) and a substantial increase in LNG imports (attracted by those same high prices). The already tight global gas market of 2021 was tipped into crisis by the supply crunch in Europe, with price-sensitive LNG buyers in South Asia being outbid by Europeans. The crisis would have been even worse but for the renewed COVID lockdown in China that curtailed Chinese gas demand and allowed LNG cargoes to be diverted from China to Europe.

The crisis continued in 2023, as Russian pipeline supply to Europe declined further and European LNG imports remained at record levels. With European gas production continuing to decline and non-Russian pipeline imports at their physical limit, LNG imports in large quantities were now a necessity for Europe. As a consequence, Europe no longer played the role of “balancing element” for the global LNG market, becoming instead a “premium market” in competition with North-East Asia. In 2022-24, LNG accounted for 31-37 percent of European gross gas supply.

Although global LNG supply grew by just over 5 percent per year in 2021 and 2022, this was not enough to prevent market tightening. The year-on-year growth in LNG supply then slowed to 2.5 percent in 2023 and 0.5 percent in 2024, keeping the market tight and benchmark prices elevated. In Europe, the situation was made worse by a further decline in pipeline gas imports from Russia following the end of Russian gas transit via Ukraine on 1 January 2025. In January-October 2025, LNG accounted for 38 percent of European gross gas supply.

 

 

The LNG wave

The global LNG market will not become notably looser, with prices falling back to the pre-2021 levels until substantially more supply is added to the market. Fortunately for consumers, supply growth is underway. In 2025, new LNG supply projects in North America (Plaquemines and the expansion at Corpus Christi in the United States and LNG Canada) were launched, with the Golden Pass project expected to launch at the beginning of 2026.

Between 2026 and 2031, a whole range of post-FID projects are scheduled for launch in North America. This supply growth will be enhanced by the growth of LNG export capacity in Qatar (where the North Field East and North Field South are already under construction and the North Field West project has been approved but is not yet under construction) as well as the UAE, and Oman. The first train of the Qatari NFE project is due to launch in mid-2026. Post-FID supply projects are also under development in Africa, Asia-Pacific, and South America.

The Arctic LNG 2 project in Russia has been curtailed by western sanctions, while two projects under development in Mozambique were frozen from 2021 to 2025 due to security concerns. If these projects are realised, they could add to the growth in global gas liquefaction capacity. What’s more, multiple pre-FID projects are under development in the United States. If any of those projects reach FID in the next year or so, they will add to the supply growth around 2030.

Global gas liquefaction capacity is set to rise from 564 Bcm in 2024 to roughly 860 Bcma in 2030 based on post-FID projects. This could be substantially higher, and the supply growth could continue into the early 2030s, depending on developments in Russia, Mozambique, and the pre-FID projects in Qatar and the United States. 

 

 

The tightness of the LNG market

Since 2022, Europe has become a premium LNG market along with North-East Asia, which has created structural tightness in the global LNG market that will only be eased by supply growth. With LNG now playing a major role in European gas supply, the tightness of the LNG market and the prices needed to attract LNG supply to Europe will be influential in the formation of the benchmark European gas price (TTF). In the absence of a similar regional trading hub in Asia, TTF has arguably become the benchmark global LNG price. In 2026-2030, the global LNG market will be characterised by dramatic supply growth that will bring with it a larger share of hub indexation in global gas price formation and further growth in trading flexibility.