U.S Oversupply Risk in Global LNG Markets

By Max Leyshon

Introduction

Since the arrival of Donald Trump to the White House in 2017, U.S production of liquefied natural gas (LNG) has exploded. With exports having been almost zero in 2015, the U.S has emerged as the world’s largest LNG exporter, exporting approximately 143 billion cubic metres per annum (Bcma)[1], 32% more than the second largest exporter Qatar with 108 Bcma. Global LNG supply is expected to grow by 60% over the next 5 years, with the U.S accounting for half of this increase. However, this explosive growth raises questions about market balance and pricing. This report examines the drivers of U.S LNG growth, the risk of oversupply, and the implications for the LNG shipping markets.

Market Context
For years the global LNG trade was dominated by Qatari and Australian exports, with most cargo being sold to Asian countries, notably Japan and South Korea. The driver of U.S dominance in LNG has been the shale gas revolution, where technological advances in fracking and horizontal drilling has unlocked huge supplies, enabling the large scale production of LNG over the last 10 years. Since these advancements, the U.S. has invested heavily infrastructure for LNG production, the largest of which is the Sabine Pass LNG terminal which initially cost over $20 Billion in 2016 and now ships 30 million tonnes per annum and is the largest U.S. LNG export terminal. 

U.S. Contract Model

Today, the U.S has the largest share of the LNG export market with 7 major exporting ports. Unlike traditional exporters such as Qatar, the U.S sells its LNG under flexible Henry-Hub (HH) linked contracts, this means LNG spot prices are tied to U.S domestic prices when exported. Unlike the more traditional Australian or Qatari contracts, which have historically included oil indexation and destination clauses, U.S. LNG exports are structured on a flexible FOB[2] basis. Once loaded, cargoes can be shipped to any port, allowing buyers to divert volumes in response to changing market conditions or geopolitical events.

Europe’s Pivot
The U.S dominance in LNG coupled with the Henry-Hub contract structure became essential to Europe during the energy crisis after Russia invaded Ukraine in 2022. Before the war, Germany sourced around 55% of its natural gas from Russia, while France relied on Russia for roughly 20% of its supply. This heavy exposure to Russia left Europe highly vulnerable when pipeline flows through Nord Stream 1 were stopped. This forced the region to turn urgently to alternative suppliers, with U.S LNG being the primary replacement. This produced huge returns for U.S suppliers as Asian and European importers competed for U.S LNG, this has made investing in U.S LNG facilities more attractive. In 2025 plans to grow LNG exports in the U.S continues, Woodside Energy has agreed to build a new facility called Calcasieu Parish which is expected to produce 27.6 million tonnes per annum from 2029 – reinforcing the dominance of the U.S Gulf in world LNG supply.

Data from U.S. Energy Information Administration U.S. Natural Gas Exports

The shift in demand from importing countries is clearly visible in the data. The chart shows how since 2022, after Russia’s invasion of Ukraine, demand for U.S LNG shifted away from Asia and towards Europe. It must be noted that Netherlands was the highest importer in Europe due to being the gateway for LNG into Europe via tankers, most of this LNG is regasified in the Netherlands and then traded within the Title Transfer Facility, after which it is sent on to other European countries such as Germany. In 2021 the U.S. supplied 27% of total European LNG imports, this increased to 44% by 2022[3], reflecting the sharp increase in demand for U.S. LNG caused by the Russian invasion of Ukraine.

The Causes of Oversupply

The main concern surrounding the growth in U.S LNG supply is the risk of a glut. By 2026, supply growth is expected to outpace demand resulting in an oversupply of LNG globally of 50 billion cubic metres (bcm). This trend is expected to continue, and by 2030 it is projected that this oversupply could be 200 bcm[4]. The U.S currently has 4 major LNG infrastructure projects under construction: Golden Pass, Plaquemines, Corpus Christi Stage 3, and Woodside. These projects are expected to push U.S capacity above 204 bcma, which is close to double current production capacity. The Qataris are also planning on increasing supply via the North Field expansion; this is projected to boost Qatar’s capacity from 104.7 bcma to 171.3 bcma. These 2 major suppliers increasing capacity at this rate could create an environment where global LNG supply outstrips demand.

The Demand Implications

One of the concerns for U.S LNG suppliers is that European demand may not hold. The main driver for this is the push for renewable energy. For Europe to keep the same levels of LNG consumption it would mean forgoing green energy, to continue importing U.S LNG would be the antithesis of the EU’s ‘Fit for 55’ legislation that states greenhouse gas emissions must be cut by 55% by 2030 compared to the 1990 levels. Furthermore, the EU renewable share states that 42.5% of energy consumption by 2030 must be through renewables (up from 22% in 2025). This legislation implies that Europe won’t be as reliant on U.S. LNG in the future as it has been since the Russia-Ukraine war.

Furthermore, demand is unlikely to rise from emerging economies as they may refuse to buy LNG if prices are high or volatile. During the 2021-2022 energy crisis, Pakistan and Bangladesh cancelled spot tenders because LNG cargoes were too costly. Instead, these economies would rather use cheaper alternatives. This elastic demand demonstrated from these economies means the LNG price must stay consistent or fall if these economies are to continue to import U.S LNG. However, should LNG supply grow as projected, lower prices may enable emerging economies to absorb cargoes that Europe no longer requires.

Lastly, one of the major factors that will impact LNG demand is geopolitics. China currently is a strong importer of U.S natural gas, in 2024 they imported 6 bcm, which makes them one of the single largest importers in the world. The rift between China and The West has impacted China’s energy consumption decisions, resulting in a plan to be less reliant on the U.S. For instance, they have announced the expansion of the Russia-China gas pipeline ‘Power of Siberia 1’ and are in negotiations to build a second pipeline ‘Power of Siberia 2’. The PS2 pipeline would supply an extra 50 bcm to China and would be cheaper than the LNG supplied from the U.S. If this goes ahead with the final investment decision soon to be announced, U.S LNG exporters could expect a fall in demand.

The rising concern for a glut was emphasised at the GasTech conference 2025, Total Energy CEO Patrick Pouyanne commented that “We are building too much…We will face oversupply”. His sentiment reflects industry forecasts and emphasises the growing anxiety that the rapid expansion of U.S. LNG capacity, coupled with the Qatar North Field expansion, could flood the market and reduce profitability.

The Impact on U.S. LNG spot rates

Spot LNG prices are expected to face downward pressure over the coming years as new supply comes online faster than demand can absorb it. The U.S export prices are underpinned by Henry Hub, which has averaged around the $3-4/MMBtu[5] range in 2025, which is very low compared to the TTF and JKM spot rates in Europe and Asia. However, this margin is likely to narrow as global LNG supply increases, with 2026 being the first year to have a surplus.  Over the next 5 years as the surplus widens relative to global demand, the spot benchmarks such as TTF and JKM are expected to fall towards minimum cost levels, in the region of $6-$8/MMBtu. This would represent a stark difference from the averages seen in 2024-25 of $10-15/MMBtu.

Impact on U.S. exporters

The fall in spot rates due to the glut in supply will likely cause the new U.S LNG projects to work with finer margins and operate at close to their breakeven point. This would leave only those with long-term fixed contracts highly profitable. However, the International Energy Agency (IEA) has stated that one third of all LNG projects under construction remain uncontracted[6]. This energy may have to be sold at the much lower future spot prices that are projected. Qatari LNG is notably cheaper to produce than U.S energy, so would have a stronger ability to weather a fall in spot prices and stay profitable. Based on this we could expect demand to shift towards Qatari LNG as the expensive U.S energy becomes less competitive. Thus, U.S dominance in the LNG market may start to waver.

Impact on Shippers

Due to cheaper spot rates, the demand for U.S LNG will increase in emerging countries such as Pakistan and India who currently would be more inclined to use cheaper energy via coal. For shippers this could mean more ton mile demand as voyages to Asia are 15-20 days longer than European voyages, therefore a potential increase in revenues. However, there has been a record number of LNG carriers ordered, mainly to match the demand for Qatar North field expansion. This is likely to damage profitability and see a rise in blank sailings. Moreover, if there are too many tankers in the global fleet then the charter rates can be expected to fall. This is a factor for ship owners to be cautious of, and to protect themselves they should aim to lock in long term contracts with major exporters such as: Shell, Total energy, BP, QatarEnergy. These contracts would create a stable cash flow even if spot rates collapse and insulate the carriers from market downturns.

Overall

Over the last 10 years the rise of U.S LNG has reshaped the global gas markets with huge infrastructure projects and flexible Henry-Hub contracts changing world trade flows. Yet the rapid build out of capacity that is planned over the next 5 years now risks creating a sustained global oversupply of 200 bcm by 2030. This glut is expected to put huge downward pressure on TTF and JKM spot benchmarks and erode the spectacular profit margins that have held mainly due to the 2022 energy crisis. For exporters, the dynamic will shift back towards the buyer as U.S projects that will be reliant on uncontracted spot rate prices will have to contend with the relatively cheaper Qatari gas. This will impact the shipping industry with longer voyages for U.S carriers and ton mile demand as U.S gas is transported to emerging economies in Asia. However, with the expanding carrier orderbook there is a risk of overcapacity and weaker charter rates. Ship owners can protect against this downturn through long term contracts and by operating efficient tonnage. Although the U.S will remain the dominant force in global LNG markets in the coming years, its exporters will likely face thinner margins and stronger competition from lower cost suppliers such as Qatar. Sustaining profits will depend on managing long term contracts, costs and shipping strategies in an increasingly tough environment.

[1] U.S. Department of Energy: Liquid Natural Gas Exports Fact Sheet

[2] Free on Board: A contract where the buyer charters and controls the vessel, the buyer decides on the cargo destination

[3] U.S. Energy Information Administration

[4] LSEG estimates – via Reuters

[5] Million British Thermal Units: measurement used for quoting the price of energy. (1bcm = 36 million MMBtu)

[6] IEA’s World Energy Outlook 2024