A recent study published by Climate Resource indicates that falling demand for liquefied natural gas (LNG) is likely to lead to a significant global oversupply of gas in the coming years. This shift is expected to have considerable repercussions for Australian LNG exporters.
The report asserts that the ongoing conflict in the Middle East may accelerate the transition away from gas, as numerous Asian nations expedite their renewable energy initiatives in response. The long-term forecast for Australia’s LNG exports is constrained by diminishing demand, and the Middle Eastern conflict could further hasten this transition, according to the findings of the report titled “The Last LNG Train Home: Australia’s LNG Outlook in a Demand-Constrained World.”
Authored by Climate Resource, a climate research and consulting organization, the report emphasizes that climate commitments made by approximately 130 countries since late 2024 have altered expectations regarding future fossil fuel consumption. It predicts that as the demand from gas-importing nations stabilizes or declines, a structural oversupply of LNG will emerge, particularly as new export capacities led by the United States and Qatar become operational by 2030.
The report cautions that many of Australia’s long-term LNG contracts will reach their expiration dates between the mid-2030s and 2040. When these contracts conclude, Australia’s prominent gas projects will face a markedly different market landscape. Consequently, the authors suggest that the current LNG contracts may represent the maximum sustainable sales capacity for Australian gas exporters on the international stage.
The report outlines broader implications for Australia’s economy, stating that a decline in LNG export revenues, compounded by similar challenges facing other fossil fuel exports like coal, could significantly alter Australia’s trade dynamics by the mid-2030s.
As one of the leading LNG exporters globally, accounting for about 20% of the market, Australia’s energy revenue is particularly sensitive to the policy decisions of its international partners. The report highlights that while the Middle Eastern conflict has caused temporary spikes in LNG and crude oil prices, it may also expedite a fundamental shift already occurring in Asia’s energy landscape.
According to lead author Anita Talberg, “Asian leaders are announcing substantial renewable energy initiatives in response to the energy security crisis. Our analysis indicates that this shift was already in progress; the crisis may simply accelerate the timeline.” She emphasized that Australia’s energy future is largely determined by developments in Beijing, Tokyo, Seoul, and Jakarta, where governments are increasingly committing to renewable energy sources.
For instance, Indonesian President Prabowo Subianto has prioritized the rapid construction of 100 gigawatts of solar energy capacity to enhance energy resilience, while South Korean President Lee Jae Myung has advocated for a swift transition to renewable energy, deeming reliance on fossil fuels as perilous for the future.
The Climate Resource report evaluated the long-term trajectory of global LNG markets under three different climate scenarios corresponding to temperature increases of 1.6°C, 1.8°C, and 2°C. It employed a “demand-led” approach to assess future gas demand, focusing on “uncontracted LNG demand,” which represents the segment not covered by existing agreements, thus indicating opportunities within the market.
The findings suggest that a global oversupply of gas is likely to develop by the late 2020s, driven by an unprecedented influx of new LNG supply. In a saturated market during the 2030s and 2040s, high-cost suppliers like Australia will face intense competition from lower-cost providers, potentially limiting their market share.
The report concludes that in key Asian markets, gas demand is expected to plateau or decline in alignment with climate objectives, restricting LNG import growth beyond the 2030s. It asserts that the market conditions that facilitated Australia’s LNG growth are unlikely to return, and as nations fulfill their climate commitments, global LNG demand will weaken while low-cost supplies expand, thereby increasing risks for higher-cost exporters.
In light of these findings, the report urges Australian policymakers and investors to reevaluate their LNG investments considering scenarios of constrained demand. It emphasizes the necessity to prepare for declining LNG exports as long-term contracts expire, to diversify into clean energy sectors, and to ensure robust domestic energy policies.
Francesca Muskovic, Executive Director of Policy at the Investor Group on Climate Change, noted that institutional investors have been assessing LNG demand scenarios for some time, and this report clarifies the emerging realities. Rising living costs attributed to fuel shortages and inflation are putting pressure on household budgets, prompting investors to question whether new or extended LNG commitments are being evaluated against the current demand landscape or outdated projections.
Moreover, the report indicates that the analytical community has often underestimated the pace of the renewable energy transition. It highlights that since 2010, the costs associated with solar photovoltaic technology and battery storage have decreased by approximately 90%, transforming the underlying economics of the energy sector.
