The imminent surge in global liquefied natural gas (LNG) supply through the end of this decade is expected to drive lasting and structural demand growth. This outlook is based on the premise that lower prices, resulting from new projects coming online, will attract new, price-sensitive markets whose demand will become permanent once established.

Supply Surge and Price Impact

A number of new LNG export projects are scheduled to begin operations in the coming years. This includes the Abu Dhabi National Oil Company's plant at Ruwais, which will more than double the company's export capacity. This wave of new supply is widely anticipated to lead to a drop in the price of LNG.

Mechanism for Lasting Demand Creation

The central argument is that lower prices will unlock demand in price-sensitive markets, primarily in the emerging world. Once these markets enter the LNG sector, their demand becomes entrenched because they make significant, long-term investments in necessary infrastructure, such as receiving terminals and related gas systems. This capital commitment creates a durable new base of consumption that does not easily revert.

Industry and Agency Outlook

This view of demand growth is shared by the International Energy Agency (IEA), which forecasts record gas demand for the coming year. The growth is expected to be particularly strong in price-sensitive Asian markets, as well as in Africa and the Middle East. LNG suppliers are making multibillion-dollar investments in new export terminals based on this expectation of rapid consumption growth across the emerging world.

Potential Risks to Demand Growth

Despite this optimistic outlook, there is no guarantee that price-conscious emerging countries will consistently underpin future LNG consumption. An example is Pakistan, which was once considered a fast-growing LNG buyer. It is now shifting its energy strategy away from LNG, partly due to the fuel's lack of competitiveness over several years and a concurrent build-out of solar power capacity.