Top Trends to watch in 2025: Natural gas

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Hill Vaden:

All right. Welcome back to EnergyCents, an S&P Global Commodity Insights podcast, covering all topics on the intersection of energy and finance. This is your host, Hill Vaden, here as always with Sam Humphreys. Sam, how are you doing?

Sam Humphreys:

I'm pretty good. Thank you, Hill. How are you?

Hill Vaden:

I'm doing all right. We've just had a good conversation about natural gas. This is part of the top trends to watch series that we're doing, where we're trying to profile different things that people should keep an eye out for in energy in 2025. This one, speaking about natural gas and LNG, which is liquefied natural gas for the less informed, we've got Matt Palmer, who's focused on US and North America gas markets, and Laurent Ruseckas, who's got more of a global remit. Laurent's talking with us from London. And so we're trying to profile different key themes, both from the US market and from the non-US market, particularly on global LNG. Can you tell people what to listen to in the upcoming 30 minutes or so?

Sam Humphreys:

Yeah, sure. So this was an excellent podcast. We had a lot of fun with this one. Like you said, we picked out three key elements. So I'm not going to go into what we talked about in detail, but obviously Trump is coming in. I think when this goes out, he will have been inaugurated, if that's the word. Yeah, inaugurated. So obviously, he's very pro-natural gas for the US, and we talked about what that could mean. There's a lot of ambition there on how much could get approved to enter the market, should we say, at some point, and whether that's the reality or not.

And then we also looked at European markets. Obviously, a lot has changed in Europe since 2022, and the wiggle room is there for demand. And apparently that the cold weather in Texas ... I still don't know if I believe this, that it's actually cold in Texas, but how a slightly colder winter this year, or 2024, may have impacted that demand cycle, and also looked at pricing because you can't have a good list without prices. So it was excellent. What about you? What did you think?

Hill Vaden:

Yeah. I mean, I guess just first, Matt and Laurent are good friends of the EnergyCents Podcast. I'm not sure when we had them last on or last on together, so it was nice to have them back to start the year. Natural gas is a fascinating topic, I find. You and I have talked about it often. It seems to, in some ways, not have a natural constituency because oil has got its group, clean tech has got its group, and natural gas, it's this low-carbon fuel caught in the middle. So there's a lot of change happening. A lot will happen this year. And I think we do a good job, or I hope we do a good job trying to picture some of the ... Or highlight the shortlist. So yeah, lots to listen to, and I hope everybody enjoys the conversation.

Okay. Laurent and Matt, thank you both for joining us, to talk to us and to our listeners about the top trends in natural gas as we head into 2025. This continues part of what Sam and I have been doing, trying to profile the top 10 or the top six or the top whatever list different teams are pointing out. And gas is obviously one of the more complicated ones because it's global, but it's also very regional as we get into it.

So we'll start, Laurent, with you, from really a global perspective looking at LNG. But Matt, this has also got some ... I'll say easy, maybe not easy, but some thoughts on the US. So how will the pace of regulatory approvals change under the incoming Trump administration, and will it accelerate US FIDs, final investment decisions? Laurent, can you add a little context to that, and tell us why it made the team's short list for global gas in 2025?

Laurent Ruseckas:

Well, President Trump, on the campaign trail, talked a lot about LNG. He's obviously a huge supporter of the US natural gas industry and the LNG export industry. And he was very critical of the pause on DOE LNG export approvals during the Biden administration. And he has said that he will approve all the projects on day one. So in fact, we think that's probably not likely. The Biden Department of Energy conducted a study on the impact of LNG exports over the course of the year. It was released in December. And I think most people think ... I think probably including the LNG developers, think that their authorizations from the DOE could be at legal risk if they're done on day one without any reference, or even waiting for the comment period, the 60-day comment period following the release of the DOE report to conclude.

So our expectation is that the comment period will end, and then the new Department of Energy, under leadership of Chris Wright, will say, "We've reviewed the report. We've reviewed all the comments. And we have concluded that LNG export authorizations are in the public interest," and they will get approved. So it won't be day one, but it could be month two or something like that.

Now, getting authorization is not all you need to take FID. You need sales, contracts, firm sales contracts in place with buyers. Some of those projects are in very good position in terms of contracting. Others still have some more contracting work to do. So that's one of the other obstacles. Some of the other obstacles have to do with legal things and infrastructure in the US to supply gas to these projects. So maybe Matt, do you want to jump in on that?

Matt Palmer:

Yeah, sure. I mean, I think you're right. There's a batch of projects that have been waiting for their non-FTA authorizations. And then there's a whole bunch of projects that are probably going to need reauthorization. So there's over a hundred million tons per year of LNG out there in the US that's looking to go. We don't think it's all going to go for a lot of reasons. One, which Laurent mentioned, is contracting. How well-contracted are they? There's a handful out there that are pretty well-contracted that we think will take FID once we get through this pause here in the next month or so. And we've had those in our outlook, just delayed a bit as we go out in the future here. But the reality is the world doesn't need all this US LNG in the next few years. There's other projects in the world coming online. And really, it's going to be global LNG demand and the offtakers' willingness to take on more capacity in the next few years that dictates how much US LNG there will ultimately be coming to the market.

Sam Humphreys:

So you mentioned then that you had the combination of projects that need reauthorization and the ones that are just all shiny and new. So you mentioned a hundred million tons. How much of that is split between reauthorization projects and licensing, and how much of that is new and could come to the market if it went ahead?

Laurent Ruseckas:

It's 54 and 54. 54 million tons are waiting for their non-FTA, meaning exporting to countries with which the US does not have a free trade agreement. Non-FTA export authorizations. They've had FERC approval. Some of those FERC approvals now have a footnote because of legal charges that have caused FERC to withdraw some approvals. They will probably be authorized again by FERC midyear.

Sam Humphreys:

Sorry. What's FERC?

Laurent Ruseckas:

When you have an LNG project, first you need to get approval from the Federal Energy Regulatory Commission. And then following that, you need this other approval, which is a judgment about the ... And the FERC process is much more complicated. It's more like standard permitting process. The DOE export authorization is simply based on something in the Natural Gas Act that says the Department of Energy must make a judgment as to whether granting this authorization is in the public interest. So the expectation is that the Trump administration will find them all to certainly be in the public interest.

Then there's 54. When you get an authorization, it's valid for seven years. The purpose of that is that if you're kind of a zombie project, you don't want a whole bunch of projects out there trying to chase after the same buyers. So there's 54 million tons worth of projects that have DOE authorizations that are set to expire probably before they're going to be exporting. So those will also be coming back. And as Matt said, we would expect reauthorization of most or all of those.

Hill Vaden:

Okay. So if we expect, at least at the federal level, the regulatory approval process to accelerate this year, Matt, in practice there are other things that can slow it down. There's lawyers that can get involved. There's different ways to slow down projects outside of federal authorizations. So do we expect ... I know it's not day one but, say, month one or month two or whatever, once Trump turns this back on, how much moves to market, how quickly? And I think you mentioned, but is the market ready for a lot more to hit it as this constraint is removed?

Matt Palmer:

Yeah. I mean, that's a good question. So if we just set aside what we're talking about here, there's already quite a bit of LNG capacity under construction. And there's two projects right now that are already starting to take feed gas to do conditioning cargoes, Plaquemines LNG, and another train at Corpus Christi. Later this year, we'll have Golden Pass LNG. So there's some momentum in the system right now that's underway.

And then there's Rio Grande, a project which is under construction, but one of their permits got challenged by the Sierra Club and the courts. And the courts said, "Burke, you got to go back and do the environmental impact assessment again. We don't think you did it thoroughly enough." And so that has put that project in limbo. They're still under construction, but they need to get that reauthorization, and that's going to take until later this year to get done.

But because of that, there's another project, Texas LNG, that is out there that is in a similar boat. They haven't taken final investment decision, but it's well-contracted, lots of offtakers, that has to have that environmental assessment done.

So what we're seeing is FERC is preemptively, with another couple of projects, Commonwealth LNG for example, saying, "Hey, wait a minute. We see what's happening here in the courts. We're going to make sure we get these environmental assessments done the way that the courts seem to want them done." And so I think what you're seeing is these projects, particularly if they haven't taken FID already, are going to wait to make sure that everything's looking good in the courts before they take FID.

So we've got a tranche of LNG coming. Some of these projects we're talking about, like Rio Grande and Texas LNG, we actually have them in our outlook. We think they're going to go ahead. And so we actually see, over the next five years, a doubling of US LNG exports from about 14 VCF a day today to over 28 VCF a day by the end of '29, which is a pretty significant increase in a five-year time period.

Now globally, we think that fits in what the market requires from a demand perspective, but you are going from a market that has been tight to one that's kind of more in balance. Then as you get a few years out, probably a little bit more weighted towards ... Not oversupplied necessarily, but getting towards that potential, especially if a few more of these US projects decide to take FID. We'll need to see if the market really needs it around 2030, but time will tell.

Sam Humphreys:

That ties in kind of nicely to one of the next points we wanted to cover. I had a couple more questions, but I'll save them. So one of the next points was what is the flexibility of European demand in a tight LNG market? Obviously, there's been quite a lot of change in Europe over the last couple of years. So maybe one of you, Laurent, do you want to speak to that to start with?

Laurent Ruseckas:

Sure. Well, I mean, European gas demand has structurally downshifted to a much lower level than it was before the crisis and the price crisis in 2022 caused by Russia shutting off the gas to Europe. So if you look at demand, this is for EU plus UK, 2021 gas demand was 477 billion cubic meters. The year just concluded, 2024, was 378. So that's a huge decline. And with prices still at present elevated, we're not seeing any bounce back in demand in Europe.

So if we look out across the next few years, the price levels we have now, which is around TTF, about $14, $15 per million BTU, that's more or less the price level we expect through 2025, because 2025, Matt was talking about, we've been in a tight market. 2025 is maybe the last year of a very tight global LNG market.

So at these prices, we're not destroying more demand, but we're certainly not bringing back a whole bunch of demand. And we do think when prices come down, a lot of the demand that was destroyed during the period of high prices is not coming back. There's been a bit of deindustrialization in Europe. The power sector, every year there's more and more renewables that the gas plants are still there but they're running fewer and fewer hours each year. So we sort of see European gas demand more or less flat throughout the rest of this decade, and then starting to decline.

Hill Vaden:

Matt, I'm going to stay with Laurent for a little bit on Europe. It's getting cold. I know that Texas and Europe are different places. It's getting really cold in Texas. What is it like in Europe right now, and how is storage set up as we head into perhaps colder periods around the Atlantic?

Laurent Ruseckas:

It was a cold November, and we had a pretty cold first half of January. So we've seen three winters. The crisis began in 2022. And the first two winters were blessed with pretty warm temperatures in Europe, which were pretty helpful for residential commercial gas demand, keeping that down. This has not been a cold winter. I mean, this is still slightly warmer than average, but it's not as warm, so far, as those two winters.

So as a result, storage is down at a lower level than it was in the previous years, but it's nothing ... It's not a crisis, it's not a great concern, but it has impacted prices. And it's especially impacted forward prices for summer 2025. So higher demand because of weather or higher demand in Central Europe, because Russian gas stopped flowing across Ukraine on January 1st. We can get into that or not later. That's pulled a lot more gas out of storage. Again, not creating any sort of crisis or anything like that, but what it does mean is that storage fill next summer is going to be more. So the market adjusts, and we have summer prices. Typically, summer prices are lower than winter prices, but right now we have summer prices on the forward curve flat with where prices are today. And in fact, next winter they're below. So we have inversion of the normal trend. And that's because of the storage being a bit lower than the last two winters on this date. But not low, not a great concern.

Sam Humphreys:

So apologies. I think this might go back to Laurent as well. I'm not sure. One of you can take it. So when you're talking about these storage levels and this slightly colder winter we had in Europe, how much demand has that generated? You say it's not a rush on this in the same sense it was a few years ago, but there is that increase in demand. And where is that coming from at the moment? Is it US LNG at the moment, for Europe?

Laurent Ruseckas:

Where's the supply ... So European LNG supply is, these days, about half of it is coming from the US. And that was a ... I mean, what happened in 2022, 2023 was the EU started importing a lot more LNG because it lost Russian gas, and the US met most of that increment. Qatar, Russia, in fact, is still an LNG supplier to Europe, but most of that's coming from the US. And so essentially, you've got the base load of LNG supplies now coming from the US, some from Russia, which could change, some from Qatar. And that's the picture. But what's very clear is that the US-European LNG energy connection now is very, very strong and very, very important for Europe.

Hill Vaden:

So that's a good way to bring Matt back into this conversation. So one of the other items on our top issues to watch within gas is perhaps predictably related to near-term natural gas prices in 2025 and beyond. And I know everybody loves predicting price because it's so easy. Can you talk a little about North America supply and North America prices as we head into the year, and what we're expecting?

Matt Palmer:

Yeah. I mean, if you think about what's been going on in the US for the last couple of years, we had a period where, if you go back to 2022, prices were over $6. And the upstream E&P companies really started to respond and bring more production. We saw gas production rise to, I think, over 100 BCF a day, got to 105. And then we didn't have a winter last winter, for example. And so for the last two years, we've seen really low gas prices, sub 250 because there just hasn't been a lot of structural demand growth. We haven't seen new LNG projects coming into the picture. We've had low gas prices, which has stimulated additional demand from the power sector, displacing coal. And so that's been a feature of the market, but really no structural demand growth to support prices.

And so the market has really been waiting on this next wave of LNG. I think a lot of the industry thought that in 2024, we'd start to see this LNG ramp begin, but what happened was we've seen delays on projects because of just a myriad of factors, EPC, contractor issues, supply chain issues, just general cost inflation.

But what we're seeing this year, and I mentioned it before, is that we do have Corpus Christi's next phase and Plaquemines LNG finally starting to take feed gas in a pretty significant way. That's going to put some structural demand growth into the market. So for this year, we're thinking prices will increase from ... They were around $2.25 last year, probably somewhere between $3.50 and $4 for an annual average, depending on weather and other factors. We're having some cold right now in the US as we're sitting here. And you mentioned Texas is going to be cold. It's going to be cold here where I am in Denver. So we're probably going to have some pretty big pulls on storage, and that's really supportive of prices right now. Henry Hub, as we sit here, is around $4, just north of there.

But as we get through the year, we think there'll be enough production, given the level of demand growth we see, to keep storage at a relatively adequate level at the end of this fall, heading into the next winter. But it's really as you get into '26 and '27 where we start to see a real step up in LNG feed gas, where that's going to drive a need for more production.

So the way we're thinking about the risk to the market here is it's really going to be about that balance between supply and demand. And any mismatches in timing there will certainly rattle the market with prices a little bit here and there, make them volatile.

But the other key facet here that is important is infrastructure. Infrastructure, both in Haynesville, which is a major play in the Texas-Louisiana area, bringing gas from that play down to the Gulf Coast. So infrastructure coming there. There's lots in development or under construction, I should say, that should enable more gas to meet LNG. And then the other is the Permian in West Texas, where we've seen new infrastructure come online last year. There's some more projects that have taken FID to bring more gas from the Permian towards the Gulf Coast. So it's really the timing of those projects that enable that gas to meet the LNG. And as long as everything works together, we'll be able to meet the demand growth, but any hiccups along the way could cause some price volatility.

Sam Humphreys:

So one thing I wanted to ask, and this almost goes back to our first point, is obviously with Donald Trump coming in, he's talking about installing new tariffs on some of our US trade partners, and that could potentially impact development of infrastructure with cost of materials. Is that something that could push these projects back, or I completely made that up? What do you think?

Matt Palmer:

Yeah. For pipelines, I would think it would depend on whether or not they've already acquired their steel. The pipe, basically. But yeah, it certainly could have the potential to cause inflationary pressure. He's talked about putting a 20% tariff on Canada and Mexico. Well, we export gas to Mexico, about six, seven billion cubic feet per day on average. So that's not really going to affect that. But we do import five or six BCF a day of gas from Canada. So it'd be really interesting to see how that plays out. Maybe there's an exemption for energy, because oil's a big deal too. We import a lot of oil from Canada. But if you're in the Western US gas market, you don't have a lot of options for alternative supply, because most of your routes in are fully utilized into the packed Northwest or California. So you'll have to pay that tariff to get that gas probably, if you need it. So it'll be interesting to see how that plays out, for sure.

Laurent Ruseckas:

I would add also that ... Yeah, you mentioned exemptions, Matt. I mean, one thing that we saw with Trump's tariffs on China during his first term was that they set up a mechanism where companies could say, "Here's the reason why this is going to be really damaging for us. Let's have an exemption." So if there's some liquefaction project that is depending on some imported component that it's not going to be able to get or it's going to have to pay a big tariff for, then I would assume, given Trump administration's support for the energy industry, they could get those exemptions.

Hill Vaden:

And Laurent, I think you quoted gas prices in Europe around $14 or $15. I mean, so if gas prices do rise this year, as Matt describes, in the US, and Europe is taking a lot of that gas, are there concerns from the European gas buyers on US supply, aside above-ground pauses?

Laurent Ruseckas:

No, I wouldn't say so. I mean, typically, US liquefaction, you need really extreme high or extreme low prices and a real disjunction that we don't really expect to have US liquefaction not run more or less at full capacity. And typically, Henry Hub prices don't affect prices in the global traded LNG market. So really, the dynamics are affecting LNG prices for Europe and for Asia and everywhere else in 2025 are going to be what happens to demand in Asia, what happens to demand for LNG in Europe, which is going to be a bit higher than last year because of the cutoff of remaining Russian gas through Ukraine and other factors. So we see demand growth a bit, driven really by China and a bit by Europe, that's going to keep prices in this ... 14 to 15 TTF, $15 to $16 per million BTU, JKM, which is our global LNG benchmark.

Sam Humphreys:

So I'm going to throw this out there, and we didn't talk about it before we started recording this. We've talked about the US and these projects that could potentially come on, but where else is there key activity with maybe some non-traditional LNG partners and projects that could be coming in to throw their hat in the ring, so to speak? Laurent, you first.

Laurent Ruseckas:

The big one is Qatar. I mean, Qatar has the single largest gas field in the world and also the single lowest cost of gas, and the financial muscle to do what it pleases. I mean, it's not US liquefaction developers. They have to painstakingly put a project together and deal with all the issues we've been talking about, and as Matt was emphasizing, find offtake. The Qataris go through a version of that process, but basically they're going to fund it no matter what, and they're going to find a market no matter what. So the other big gorilla in the global LNG market both today and going forward is Qatar. I know, Matt, if you want to talk about Canada LNG, it's another big, big project coming on.

Matt Palmer:

Yeah. There's a huge ... There's two trades coming online at LNG Canada, off the west coast of Canada. Those trains are starting to take feed gas and go through commissioning process probably in the next couple of months. And we envision they'll take about a year to ramp up, because it's a different dynamic up there. There's just one pipeline coming from Northern BC over to the coast. And so it'll take a little longer, we think. But there's two other projects, Cedar LNG and Woodfibre LNG, smaller projects that are on the west coast of Canada as well that are coming online. And of course, there's a potential for more down the road. LNG Canada has envisioned two more trains in the future, and much closer to Asia from the West Coast, so a lot of reasons to try and make that happen. But for Canada, LNG is where the growth is, because the US is well-supplied with its own gas. Historically, Canada used to export a lot of gas to the US. And so LNG is definitely seen as a way to keep the Canadian gas market growing.

But beyond another two trains, it's ... LNG Canada, it's getting harder to envision a lot more projects in Canada for a lot of the same reasons in the US, just infrastructure. The ability to build pipelines has become such a challenge. And imagine trying to do that through the Canadian Rockies. That project had a lot of opposition. And it finally got done, but I imagine companies would think long and hard about trying to do that again anytime soon. So it'll be interesting to see how much more LNG comes out of Canada over the next 10 to 10, 15 years.

Laurent Ruseckas:

And if we're talking about more emerging LNG suppliers, Samantha, we've got some West African projects, smaller ones, but are expected to move forward this year. Greater Tortue, which is a Mauritanian-Senegalese joint project. And then Republic of Congo has Congo-Brazzaville. They have a floating LNG project that'll come online. The dog that hasn't been barking is Mozambique. Mozambique has enormous gas reserves, and a number of the largest players in the world have been investing there and developing projects. And those have gotten stalled for political risk reasons. So Mozambique, which if you went back a few years, we would've been projecting some Mozambique LNG to be exported right around now. That's been kicked into the future.

Matt Palmer:

Yeah. I guess one more. We talked about the US's neighbor to the North, might as well talk about the one to the south, Mexico. Costa Azul, off the west coast of Mexico, has a small project that should be starting this year, we expect. And then there's a few small floating LNG units near Altamira, called Fast LNG. One's already in operation. There's another two that we expect to start operation the next few years as well. They're small, but Mexico will be exporting almost a VCF a day of LNG probably in two, three years. So that's pretty remarkable.

Hill Vaden:

Curious about Fast LNG. How fast is Fast LNG? Because at Costa Azul, I started covering that 20 years ago when I joined the energy industry.

Matt Palmer:

Well, that was supposed to be an import terminal, if you recall. They turned it around and going to export some US gas via Mexico that way. But the Fast LNG units it was, I don't know, within two years, at least.

Hill Vaden:

Okay. So that's fast.

Matt Palmer:

If not quicker, yeah.

Hill Vaden:

Well, so I'm just looking at time, and we're toward the end of our recording. And we like to finish this ... Pulling from the list is hard, creating a list is hard, because there's so many things you leave off. So we'll ask each of you, and I'll gauge this by your impression or by the facial expressions I can see. For each of you, which either didn't make the list that you thought really should make the list of things to watch in 2025 for the US or for global, and/or what is on your list but Sam and I didn't pull out into the conversation today? Laurent, you're nodding most confidently, so I'm going to ask you first and come back to Matt who's not making eye contact with me.

Laurent Ruseckas:

The thing I'm looking at really, really closely, which was addressed to a certain extent but not in depth in the top 10 list, is EU policy toward US LNG in the context of the Trump administration. So a few days after Trump was elected, Ursula von der Leyen, the president of the European Commission, called President Trump, and then after the conversation, made some public remarks and said ... And of course, what's the main issue for the EU? It's a flat 20 or 25% tariff on all goods. So that's the thing that's scaring the EU. And so she said, "I spoke to President Trump. We understand his concerns about the trade deficit that the US has with the EU. One of the things I told him was that the EU should buy more US LNG. And in fact, maybe we should buy US LNG instead of Russian LNG," because there is this Russian LNG coming from the Yamal Peninsula that's supplying about 16% of the EU's LNG needs.

So that's kind of the opening gambit in the discussion with the US. And it's very smart, because it takes something that Donald Trump is very focused on, the US energy dominance, and offering concessions in that area that he can take away as a great victory. And hopefully that'll solve and help resolve the broader trade issues.

Now, a lot of people said, "Well, the European Commission does not import LNG. It doesn't really have any authority to do anything," but one thing it can do is sanction EU import of Russian LNG. That's something that's been on the table. Some countries in the EU have lobbied for that. Others have been nervous to pull the trigger on that. So one of the expectations I have is that during the Polish presidency of the EU, which is the first half of 2025, sanctions on imports of Russian LNG into the EU will be put on the table, maybe get consensus. So that would happen. And then by taking Russian LNG out of the European mix, that will be filled up most likely with more US LNG.

Hill Vaden:

All right. Matt, same question to you. Different answer. You can't pick the same answer.

Matt Palmer:

Darn. So in the US or North America, we did our top 10 list with our power team. And I know you're going to be talking to one of my colleagues later in this series, but you can't listen to an earnings call for an infrastructure company or a utility in the US without hearing about data centers, right? And I will talk about the potential growth there, but if electricity demand really does grow in a meaningful way over the next few years, whereas it hasn't the last decade or so, the implications for gas for our generation are tremendous. And I think one of the things that we are hearing more and more about as we listen to earnings calls from midstream companies and upstream companies is just the amount of interest they've had in providing gas infrastructure and/or supply to power on-site generation for data centers, because there's such a need for these data centers for AI and other things coming on really rapidly. So I think that's a space that we're really watching pretty closely, and what it could mean for the gas industry going forward.

Hill Vaden:

All right. Sam, anything from you before we sign off?

Sam Humphreys:

I think we need to start playing data center AI Bingo on these calls, on these podcasts, just to see how many times they come up. But no, that was brilliant. Thank you so much to both of you, Laurent and Matt, for joining us. That's a lot to be watching out for this year, I think. So yeah. Thank you.

Hill Vaden:

Thanks, guys.