Bulls and bears clash across global LNG markets ahead of 2025 amid supply-demand uncertainties

As supply-demand uncertainties persist, the global LNG market faces significant headwinds, particularly with the expiration of the Russia-Ukraine transit deal early next year.

This situation may lead to price fluctuations as Europe prepares to compensate for approximately 42 million cubic meters per day (mcm/d) of natural gas that could be lost from Russian supplies. This volume equates to around 12 additional LNG cargoes per month that Europe will need to secure from the global market, sources said.

Market participants are already observing a tighter cargo market, despite limited global competition for the first half of winter. According to S&P Global Commodity Insights, around 18.83 million mt of LNG were recorded on water as of Dec. 19, the lowest since Sept. 16, and down from 20.03 million mt at the same time last year.

Additionally, the number of cargoes acting as floating storage was recorded at 11 ships, compared with 14 floating cargoes a year ago. The peak for floating cargoes this year was 25 on Nov. 28, down from 37 on Oct. 25, 2023. The narrow contango across Europe has inhibited storage economics for many European players, creating concerns over supply ahead of the next injection cycle.

Competition for cargoes

The narrow spreads across forward curves and thin differentials across basins suggest tight competition for next year's summer injection cycle.

Platts, part of S&P Global Commodity Insights, assessed the Northwest European LNG Summer-2025 contract at $12.322/MMBtu, compared with the Northeast Asian JKM LNG benchmark at $12.641/MMBtu. The 31.9 cents/MMBtu differential between the two basins is significantly narrower than the $1.452/MMBtu previous year.

With NWE LNG Summer-25 currently in backwardation to its Winter-25 counterpart, traders have cited depressed storage injection and floating economics.

"People are worried about the summer injection season; it might be a very tough winter next year," an LNG trader noted. "There is a lot of volatility... there is definitely worry about what will happen in the next injection cycle ahead of winter-25."

Although NWE-JKM spreads remain seasonally thin, weak freight rates have intensified competition, as players with additional shipping capacity continue to direct their volumes towards Asia despite a closed arbitrage. The shipping market appears stable, with shipbrokers reporting a balanced environment where available vessels match current demand.

"Regarding supply, we can except some change with a start-up of Plaquemine but hearing it would be march/April" an LNG shipbroker said. "Egypt might also be active in the beginning of next year, but this was already expected in Q3-Q4, so I don't know."

As of Dec.18, the Atlantic Basin, saw day rates for TFDE ships dropping to $15,500/day, down from $130,000/day over the same period. In the Pacific Basin, TFDE ship prices dropped to $11,500/day from $105,000/day a year earlier.

As of Dec.18, the Atlantic Basin, saw day rates for Two-stroke ships dropping to $23,500/day, down from $160,000/day over the same period. In the Pacific Basin, two-stroke ship prices dropped to $20,500/day from $130,000/day a year earlier.

"I expect [rates to remain] pretty range bound. For now, availability for the second quarter of January is tight, but there aren't necessarily 50 million cargoes popping up," a market participant said. "I'm not expecting a surplus of supply."

Bulls and bears clash for 2025

Despite rapid destocking across European gas inventories, some traders maintain a bearish outlook. As of Dec. 17, European gas storages were 77.09% full, lower by 11.47% from 2023 levels but still 18.36% higher than in 2021.

Favorable netbacks to Europe and reduced demand in Asia for Q1 are expected to position LNG favorably in the Atlantic basin. However, so far in Q4-2024, Europe has imported 23.58 million mt of LNG, Commodity Insights data showed. This was lower year on year versus the 27.69 million mt in Q3-2023.

Current prices appear to reflect the anticipated expiration of the Russia-Ukraine transit deal, and with mild winter forecasts, prices may decline further. Production remains healthy, but prices are not factoring in potential unexpected supply issues, traders said.

The backwardation between summer and winter 2025 prices is narrowing amid expectations of increased supply in the second half of 2025. Commodity Insights anticipates around 94.7 million mt of supply from the US and Qatar to arrive in H2 2025, representing a near 5% increase from H1 2025 and an 8% rise from the 87.44 million mt in H2 2024.

Though supply will gradually increase, traders still expect the 18 million mt US Golden Pass facility to be delayed until Q1-2026. Market sources suggest that while regional supply may be tight, the overall market could be slightly looser than this year due to these smaller projects coming online.

"Right now, it's all just uncertainties keeping prices high, [while in 2025] these projects expected aren't huge volumes, so it will still be tighter than expected but it depends on Asian demand," a Mediterranean-based source said.

Increased gas supply to China and robust renewable energy generation are expected to depress demand from Asia in Q1. However, traders still foresee a tight LNG market, especially considering delays in major projects. The anticipated demand increases and delayed US projects, combined with limited incentives to inject gas over the summer, could tighten winter balances for next year.

"Our European balance shows storage at the end of March 2025 at around 40% full. This is down from the 58% full at the end of March 2024," said Warren Patterson, head of commodities strategy at ING. "While significantly down year-on-year (due to a mild 2023/24 winter), this storage is still fairly comfortable on a historical basis and supports the view that European prices should trend lower through next year."

Patterson added that the EU can secure an additional 4 bcm of LNG supply from November to March, compared with the previous year. European gas demand is expected to rise by about 2% year-on-year in 2025, with uncertainty largely weather-dependent.

For now, prices have seen relative downturns with Platts assessing the DES Northwest European marker for February at $12.448/MMBtu on Dec. 18, down 15% since the start of the month, while the DES JKM marker for February was assessed at $13.135/MMBtu, also down around 15%.