Global LNG supply glut from 2025 - International Energy Agency warns

The world will see a significant increase in LNG supplies from 2025, the International Energy Agency has forecast - which clouds the global transition away from fossil fuels.

The world is heading for a global LNG glut by 2025, warns the International Energy Agency.

The price of LNG, one of Australia’s most valuable exports, is expected to fall substantially from 2025 as new projects come online, the International Energy Agency has said, a forecast that threatens to cloud the global transition away from fossil fuels.

A surge in gas prices has been a driver of global inflation after Russia moved to exert economic leverage by limiting exports to Europe in an attempt to wind-back crippling sanctions.

In a boost to central banks but denting the outlook for Australia’s $2.5tr economy, the IEA said there has been a significant increase in new projects, many of which are due to come online from 2025. The IEA said it expects an “unprecedented surge” that is expected to add more than 250 billion cubic metres per year of new capacity by 2030, equivalent to around 45 per cent of today’s total global LNG supply.

The increase in gas supplies will coincide with falling demand for fossil fuels, the IEA said. Demand for coal, oil and gas has for decades made up about 80 per cent of global energy supplies, but the IEA said it expects the figure to fall to 73 per cent by 2030.

The outlook for gas threatens to upend the plans of notable Australian corporate heavyweights and potentially disrupt plans for the energy transition.

Companies such as Woodside Energy and Santos have made multi-billion dollar investments in new projects, which they said was needed to meet expected global demand. Lower LNG prices would dent the returns for the corporate giants.

Cheaper gas would be welcomed by Australia’s manufacturing sector, which has warned the future viability of many businesses is under pressure due to high commodities prices.

But the prospect of a LNG supply glut could also slow the transition. High gas prices has accelerated a push towards electrification where possible, and cheaper LNG could see more and more users delay the transition.

Lower LNG prices could muddy the development of hydrogen as a fuel source. Many countries are making plans to switch imports away from LNG towards hydrogen but lower prices could alter plans.

Lower prices could potentially make so-called blue hydrogen commercially viable. Hydrogen is produced by splitting water into its core elements, but the process requires significant amounts of energy.

Gas could be used but opponents say it would do little to reduce global emissions. Supporters of gas insist carbon dioxide could be captured and stored.

Renewable energy is favoured by environmentalists, but to make it commercially viable - there would need to be a significant increase in zero emission generation capacity.

While insisting global demand is on the wane, the IEA said global energy-related carbon dioxide emissions will peak by 2025, but the prospect of a supply glut clouds the worldwide transition away from fossil fuels which the Paris-based agency warned is not moving quickly enough.

As things stand, demand for fossil fuels is set to remain far too high to keep within reach the Paris Agreement goal of limiting the rise in average global temperatures to 1.5 degree Celsius, the IEA said.

The IEA said instead policy settings globally are on course to see temperatures rise about 2.4 degrees Celsius - which heighten what it said was a climate emergency and pressure worldwide energy systems. Extreme heat will heighten demand for electricity, while many generators could struggle under such temperatures.

Curtailing emissions to meet the 1.5 degree Celsius remains possible but very difficult, the IEA said but it said urgent action was needed.

IEA executive director Fatih Birol said governments need now to embrace the benefits of the transition that he said is locked in.

“The transition to clean energy is happening worldwide and it’s unstoppable. It’s not a question of if, it’s just a matter of how soon – and the sooner the better for all of us,” said Mr Birol.

“Governments, companies and investors need to get behind clean energy transitions rather than hindering them. There are immense benefits on offer, including new industrial opportunities and jobs, greater energy security, cleaner air, universal energy access and a safer climate for everyone. Taking into account the ongoing strains and volatility in traditional energy markets today, claims that oil and gas represent safe or secure choices for the world’s energy and climate future look weaker than ever.”

The call for action is likely to be seized on by the Albanese government for its policies to hasten Australia’s energy transition.

The federal Labor government has committed to a target of rapidly reshaping the country’s electricity generation, targeting having renewable energy generate more than 80 per cent of Australian electricity by 2030. The target is a key pillar of the government’s legislated target of reducing emission by 43 per cent by the end of the decade.

But Australia is falling well behind the pace needed to meet the transition target. Less than 40 per cent of the country’s electricity is currently generated from renewable energy sources, and notable new projects remain bogged down - primarily due to a lack of high-voltage transmission lines.

Originally published as Global LNG supply glut from 2025 - International Energy Agency warns