Media: LNG market drifting toward oversupply

Global LNG markets are facing near-term volatility after the closure of the Strait of Hormuz and disruptions to major supply infrastructure, yet longer-term dynamics increasingly point towards a potential oversupply driven by a surge in global investment, Bloomberg reports.

The conflict involving Iran has pushed benchmark LNG prices higher, though still well below the record levels seen after Russia’s invasion of Ukraine. In March, the Asian benchmark Japan-Korea Marker (JKM) briefly rose to about $30 per million British thermal units, up from under $11 in February.

By comparison, prices in 2022 surged nearly eight-fold to close to $70. Unless peace talks between Washington and Tehran collapse and the Strait of Hormuz remains closed beyond July, prices are expected to ease again.

The immediate shock has been significant, with around 20% of global LNG supply affected by the disruption of the key shipping route, tightening markets in South and Southeast Asia. However, the underlying investment cycle in LNG remains intact.

The industry’s capital-intensive nature—typically requiring $20bn to $30bn per liquefaction project—means new supply is only sanctioned when long-term demand is secured, helping balance the market over time.

That logic is now shifting under geopolitical pressure. Having experienced the Hormuz disruption, Asian importers are expected to diversify away from Gulf supply, accelerating investment in alternative export regions. As one industry view put it, “everything outside Hormuz gets built,” signalling a broader construction wave beyond the Persian Gulf.

At the same time, the International Energy Agency says the global pipeline of LNG projects has expanded sharply. “There remains a pipeline of over 700 billion cubic meters of projects globally seeking final investment decision, including around 110 billion in the US that have received regulatory approval,” according to the IEA. With global production currently near 600 billion cubic metres, full build-out would more than double supply.

Whether demand can keep pace is increasingly uncertain. Past LNG supply waves have been absorbed within a few years, led by China and Europe, but future growth may be weaker as buyers reassess exposure after repeated energy shocks. Price-sensitive importers such as India, Bangladesh and Pakistan are likely to accelerate a shift towards alternatives including renewables supported by storage, and coal-based generation and industrial use.

In the near term, LNG prices may remain elevated as importers rebuild inventories and hedge against renewed instability in the Gulf. But the broader trajectory is increasingly pointing towards oversupply later in the decade, as new capacity from the US, Qatar and emerging exporters comes online alongside diversification-driven investment decisions in Asia.

The result is a market caught between short-term geopolitical disruption and a longer-term structural expansion in supply. While timing remains uncertain, the direction of travel suggests LNG could move from tightness to surplus more quickly than expected, reshaping global energy pricing dynamics into the 2030s.

By Aghakazim Guliyev