A new report by the Oxford Institute for Energy Studies warns that the global shift from Russian gas to US LNG is creating short-term price volatility and increasing geopolitical risks. The report notes that increased reliance on a "volatile" US ally makes the long-term stability of gas markets uncertain.
Russian energy sanctions have prompted many countries to turn to the US to secure liquefied natural gas (LNG) supplies, the report said. As a result, the U.S. is expected to dominate the growth of global LNG supply, with installed export capacity expected to nearly double by 2030.
Market volatility and long-term risk
This rapid expansion comes at a time when the global LNG market is experiencing significant volatility. The next wave of LNG supplies may mitigate some of the risks late in the decade, but spot volatility is likely to escalate.
The report added that gas is increasingly serving as a backup for intermittent renewable energy, and that uncertainty about new investments could lead to supply shortages, which could increase political tensions if producing countries blame EU policies that add regulatory and price risks.
Politics and competitive pressures
The report also warned that the strong US push to secure overseas markets for LNG, especially under the Trump administration, could lead to the politicization of the gas trade, which could undermine long-term trust among buyers.
Unlike oil, which has maintained steady demand for decades due to transportation dominance, natural gas faces strong competition from renewable energy in Europe and China, and from coal in India and parts of Asia, making its long-term prospects less stable.
Globalized Risks and Changing Alliances
The US government's ability to influence global energy trade through the dollar clearing system increases the potential for market disruptions, prompting countries such as Russia, China, India and Iran to explore options to trade energy in local currencies.
The interconnectedness of global price indices means that a supply shock in one region quickly leads to higher prices in other regions. After the war in Ukraine, European and Asian gas prices practically merged, turning a European crisis into an Asian crisis, and increasing concern among large consumers in Asia, including China and India, about the long-term reliability of LNG for electricity generation and industrial use.
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