U.S. and world LNG markets are facing a new normal: regulators, off-takers, and end-users are all increasingly conscious of greenhouse gas (GHG) emissions. The ultimate impact on U.S. LNG and natural gas demand is unclear, but some players could be left behind. Engie cancelled a planned long-term supply agreement with Next Decade’s Rio Grande LNG project in November, Pavilion and Qatar Petroleum have included a carbon emissions tracking feature in shipments, and Cheniere is including cargo emission tags in its shipments. We expect that environmental, social, and governance criteria (ESG) will be an enduring, permanent feature in LNG markets as “Carbon neutral” LNG cargoes increasingly gain market and investor attention.

Faster project development could also reshape markets. Cheniere and Venture Global may be able to complete their Sabine Pass and Calcasieu Pass projects well ahead of schedule – an extraordinarily impressive feat amid a pandemic. If U.S. LNG producers can accelerate production schedules at minimal cost, they will become more competitive.

ESG will weigh on exports to Europe, coal on exports to Indo-Pacific

The LNG-as-bridge debate will continue to play out in different ways across different markets. We continue to believe that ESG concerns and increasingly competitive renewables/battery costs will pressure U.S. LNG exports to Europe in the long term. Indeed, the IEA is projecting that the EU’s 2030 gas demand will be 8% lower than in 2019. We believe that LNG may be a beneficiary of the ESG wave, however, as it can lower carbon emissions at the expense of coal and oil.

Indo-Pacific markets are likely to be much more receptive to U.S. LNG exports. While U.S. LNG long-term supply agreements with buyers in China and India will remain constrained because of politics and geographic distance, respectively, we are much more optimistic that U.S. volumes will find their way into Southeast Asian markets in Vietnam, Thailand, Indonesia, Malaysia, etc. We believe that South and Southeast Asian markets (along with niche Latin American markets) will largely determine the long-term future of U.S. LNG, as we project that the “Rest of Asia-Pacific” markets will add nearly 8 Bcf/d of demand from 2020 to 2030.