The Myth of the LNG Glut
Every few days, another headline warns of a looming “LNG glut.” It’s an easy storyline: too much supply coming online, not enough demand to absorb it, prices falling through the floor. But anyone who has worked inside this industry knows that LNG is not a commodity that can be oversupplied on short notice. The narrative of a durable glut oversimplifies a market that is structurally growing, capital-intensive, and demand-driven.
As I often remind people: LNG cannot be overproduced on short notice: projects require large up-front investment, multi-year permitting and construction, and long-term contracts.
This is not an industry of quick swings. It is deliberate, long-cycle, and deeply anchored to end-user demand. Let’s break down why the “glut” story doesn’t hold up.
Supply Economics Make a Lasting Glut Impossible
Unlike oil, LNG projects cannot be dialed up and down in months. New export capacity takes years — often close to a decade — to permit, finance, and build. By the time new volumes reach market, they are already secured by long-term contracts that guarantee project economics.
That reality creates a natural floor for prices: Because of those high costs, projects require certain price levels and long-term contracts to be bankable. Temporary spot price dips don’t destroy the economics of ongoing or committed projects.
In short, you can see price volatility in the spot market, but you cannot see a durable glut in LNG supply.
Structural Demand Growth & the Geopolitical Pivot
Global LNG demand is rising for reasons that are not cyclical, but structural.
• Europe’s energy security pivot: Since the war in Ukraine, Russian pipeline volumes into Europe have been permanently displaced. LNG has filled the gap, raising its share of European gas demand from about 12% in the 2010s to over 35% since 2022.
• Russia’s eastward shift: As flows to Europe have fallen, Russia is pivoting eastward, redirecting pipeline gas capacity to China. That increases competition for LNG molecules in global markets rather than creating oversupply.
• Asia’s growth engine: Despite some short-term demand slowdowns, Asia is the structural growth driver. China, India, and Southeast Asia will account for the lion’s share of LNG growth through 2040. Shell projects demand will rise nearly 60% over this period.
The point is clear: Energy security concerns and coal-to-gas switching ensure LNG remains premium, necessary, and finite.
Contracts, Portfolio Players, and End-Users Anchor the Market
When people talk about an LNG glut, they usually point to the spot market. But the spot market is not the LNG market. Over 60% of global LNG trade is governed by long-term contracts (lasting more than 4 years). Spot and short-term volumes are sizable but do not represent the majority.
Moreover, these contracts are increasingly signed by portfolio players — international oil companies and traders that provide market coverage across multiple regions, arbitraging between Asia, Europe, and the Americas. They benefit and manage volatility and provide energy to the highest bidder.
At the bottom of it all, the ultimate anchor is the end-user: Utilities, industrial users, and households need affordable, reliable energy. They are the ultimate demand anchor behind the supply and contract decisions made upstream.
Behind every contract, ship, and terminal, there is a customer who needs energy to keep the lights on.
Prices Won’t Collapse Below Viable Project Economics
Yes, spot prices can fall. They have before. But can LNG prices collapse below project economics for a sustained period? The answer is no. Because many LNG projects are approved only when long-term offtake contracts are in place, there is a built-in floor to the price they must receive to justify investment.
This means that even if spot prices swing, the core of the market is protected by contracts. LNG’s floor is embedded in its structure.
Supply Tightness, Infrastructure, and Logistics
Even if you accept the idea of oversupply, you still run into the reality of infrastructure. LNG is not just about molecules — it’s about moving those molecules across oceans, regasifying them, and piping them to customers.
Regasification terminals, shipping capacity, liquefaction capacity — all take time and investment. Even when infrastructure exists, shipping costs, fuel, and logistical constraints limit how fast supply can move.
That means supply cannot simply “flood” the market, regardless of how many trains are approved.
Historical Precedent: Gluts Don’t Last
History shows that LNG gluts are temporary. In the mid-2010s, for example, new supply temporarily outpaced demand. But the market self-corrected through project delays, FID cancellations, and rising consumption.
Past periods where supply seemed to outpace demand were followed by corrections — delays in FIDs, cancellations, or demand rising. The market has self-corrected.
Today, GIIGNL’s 2025 report makes the point again: despite growth in spot trade (~36%), long-term contracts still dominate at ~61% of interregional imports.
The system is built for balance.
A "Glut" Headline, Not a Reality
The LNG glut narrative makes for splashy headlines, but it isn’t borne out by the fundamentals:
• LNG supply cannot be switched on overnight.
• Demand is structurally growing due to Europe’s pivot, Asia’s rise, and energy security concerns.
• Contracts and portfolio players stabilize the market.
• Prices are underpinned by project economics, not short-term volatility.
• Infrastructure limits and history both prove that gluts don’t last.
The reality is simple:
A glut is a headline, not a reality. Behind every contract, every terminal, every investment, there are real end-users who expect affordable, secure energy — and markets behave accordingly.