As global liquefied natural gas prices spike and plunge unpredictably, driven by geopolitics, extreme weather conditions and other factors, analysts at the Institute for Energy Economics and Financial Analysis warned that this could ultimately undermine the commodity's long-term demand.
The report highlighted the repeated bouts of extreme volatility in global LNG prices in recent years, starting with the COVID-19 pandemic, Russia's invasion of Ukraine, and more recently, the escalating conflict in the Persian Gulf.
While these disruptions have led to windfall gains for the LNG industry, IEEFA noted that developing economies have borne the brunt of these price swings.
As a result, it warned that such prolonged price uncertainties may eventually weigh on the industry's own growth prospects by eroding consumer confidence.
The report pointed to weakening Asian demand, with China's LNG imports already falling to their lowest year-to-date levels since 2019, while Pakistan, Vietnam and the Philippines slow down their planned LNG infrastructure investments, prompting analysts to lower their regional demand forecasts.
It also highlighted a wave of new LNG export capacity that is set to enter the market over the next five years, across the US, Mexico, Australia, Nigeria, Qatar, Canada and Indonesia, leading to potential oversupply.
The report also said declining costs for renewable energy and battery storage are providing increasingly competitive alternatives to LNG-fired power generation in many markets, adding another challenge for future demand growth.