Long-term LNG contracts sold out! Japan warns supply has been carved up by 2026

Nov 22, 2022

Europe is determined to reduce Russia's energy dependence, which also means that European countries are still in full swing to find alternative suppliers of natural gas around the world.


The bad news is that, according to a report by the Japanese Ministry of Economy, Trade and Industry, long-term LNG contracts that can be supplied at stable prices until 2026 are currently sold out.


The U.S. and Qatar are the only countries capable of bringing additional gas supplies to Europe, but even then they will have little new capacity until 2026. This means importers will be forced to rely on a highly volatile and expensive spot market due to intense competition for LNG from the EU.


The Japanese official report pointed out that the EU's new demand is expected to reach 36.8 million tons of LNG, which also requires the EU to import more than 100 million tons of LNG per year from 2022.


According to Japanese companies, the long-term LNG supply contracts in the global market have been divided up by various countries. China, South Korea, and the EU are the countries or regions that import the most LNG in the current situation.


And since many countries in Asia have already signed contracts with major natural gas suppliers such as the United States, it will be difficult for these countries to absorb excess supplies from Russia.


In addition, due to the reduction of investment in the LNG field in the past few years, some LNG projects in the United States and Malaysia still have certain production risks, and the production capacity may not be as optimistic as expected. This may mean that the global LNG supply capacity may gradually decline before 2025.


Procurement war will begin


The report warns that the global LNG supply market will intensify competition over the next three years. The Japanese business community has also issued a warning: the procurement environment of the LNG market has undergone great changes and is in the midst of a "purchasing war".


It also means that importers will be forced into the spot market, where gas is currently trading at about three times the price of long-term contracts. Some importers will have to buy LNG at high prices.


The price is only part of the loss. According to estimates by Japan’s Ministry of Economy, Trade and Industry, if Russia’s pipeline gas exports to Europe are completely cut off, by January 2025, there may be a global shortage of 7.6 million tons of LNG, which is equivalent to Japan’s monthly imports.


Japan's Ministry of Economy, Trade and Industry also held a public-private liaison meeting to discuss LNG supply with energy industry executives. Takehiro Honjo, president of the Japan Gas Association, said cooperation among LNG buyers should be promoted to ensure stable supplies of electricity and natural gas.