Enthusiasm for the current energy transition path appears to be wavering. Against this backdrop, motivated by their ‘low-carbon’ credentials and spurred on by the apparently insatiable demands from AI data centres, gas market players are sensing an opportunity. At Gastech (the world’s largest gas conference, held in Milan in September), producers were subtly evolving their narrative. Rightly or wrongly, gas is no longer being vocalised as a ‘bridge’ or a ‘transition fuel’: instead, it is increasingly marketed as a ‘destination fuel’.

In addition to piling into renewables, Europe’s response to high prices and a desire to exit Russian gas is to secure new gas supplies. Conveniently, LNG output is surging (from the US, Qatar, Australia, Canada, Mozambique and elsewhere), adding an additional ~400bn m³ of capacity (or 70%) by the early 2030s, according to analyst Anne-Sophie Corbeau, Global Research Scholar at the Center on Global Energy Policy.

At Gastech, the US contingent was present in full force, inking long-term purchasing contracts for their soon-to-double LNG output. It is clear that the US rationale is part politically motivated (Secretary of State for the Interior Doug Burgum noted that the US wants to ‘sell energy to our friends so they don’t have to buy from our adversaries’), but part commercial (eyeing up more than $50bn in annual revenues).

But almost no one at Gastech was talking about the elephant in the room – LNG oversupply – and the need to ensure that companies minimise waste to maximise their own competitiveness.

Rightly or wrongly, gas is no longer being vocalised as a ‘bridge’ or a ‘transition fuel’: instead, it is increasingly marketed as a ‘destination fuel’.

Some considerations of the coming LNG surge 
The surge in LNG exports needs careful consideration for three main reasons.

Firstly, new EU methane standards may restrict market access to ‘dirty’ gas. Whilst their details are not yet fully defined, by 2030 LNG exporters will need to meet stringent carbon intensity standards or risk losing market access and/or pay penalties. A recent report (A workable solution for implementing the European Methane Regulation) by RMI, CATF and EDF outlines one potential approach.

Secondly, LNG exports are likely to further drive up US power prices. Exports divert valuable domestic supplies (which are already at risk due to lower oil prices, as discussed below). And when combined with the surge in power for AI data centres and the new administration’s lack of enthusiasm for wind and solar, power prices are likely to increase. Indeed, over the last year, electricity prices have risen in all but four of the 50 US states. This is the exact opposite of Trump’s pledge to ‘halve power prices within a year’.

The link between lower oil prices and gas supply is worth unpicking. The often-missed link is that one third of US gas production is so-called ‘associated gas’, that is, gas co-produced with oil. When oil prices are low (and they are expected to remain around $50/b through 2026), drill-baby-drill slows, putting future gas supplies at risk. The pressure could intensify as OPEC+ continues to unwind its voluntary production cuts (coupled with Kurdistan’s recent reopening of its oil export pipeline via Turkey). A resulting crunch in associated gas production could make Australia an undesirable role model for the US. In Australia, 74% of all gas produced is already exported to high-priced international markets. And LNG-linked prices have pushed up electricity prices, especially whenever gas is the marginal generator (ie coal or renewables are constrained).

Thirdly, the global outlook for gas remains highly uncertain. As Corbeau notes in her Qatar’s energy decisions article, that country’s response (itself soon to surge in LNG export capacity) remains unclear. It could flood global markets and act as an OPEC-style pressure point (driving down prices and crushing higher-cost producers), or it could constrain its supplies to Europe (in protest to the EU’s upcoming regulations). Furthermore, indications of China’s direction of travel are mixed: LNG imports are reportedly down for the 11th consecutive month, yet increased imports are planned from Arctic LNG 2 and Sakhalin 2 (according to Russia’s Energy Minister), and Russia is now powering ahead with its new Power of Siberia 2 gas pipeline.

Given the uncertain gas market outlook, it is perhaps not surprising that there was a flurry of LNG contracts being signed at Gastech, with exporters keen to ‘lock in’ offtake agreements before the situation changes. But some thought that Gastech was more a ‘deal-making frenzy and reality denial’, with ‘peak hubris’ on display. Perhaps even ‘irrational exuberance’, according to executives from Shell and TotalEnergies, who noted that many recently-approved projects are ‘at the higher end of the cost curve’. But this could be a boon for buyers.

A competitive buyers’ market?  
In an oversupplied international market (which most analysts say is highly likely), gas prices would fall, buyers would gain leverage, and consumers and industries would benefit. Increasing supply options for major purchasing blocks could enable importers to select their energy, in part, on its end-to-end carbon intensity.

For gas, the proposed, but not yet fully defined, EU Methane Emissions Regulation (EU MER) will matter more than ever. Importers will want to buy (and perhaps pay more for) ‘differentiated’ gas (ie gas that is certified to have low emissions from production and transport). Exporters would do well to take note to ensure their supplies remain competitive, else there is a risk that they may have to cede market share, lower price expectations or face penalties.

Whilst the EU’s methane regulations are controversial in the views of many exporting blocks, it is encouraging that 42 institutional investors (collectively accounting for more than €4.5tn in managed assets) recently wrote to the EU Commission to quickly adopt the proposed regulations. They argue not only that import standard implementation is the right thing to do, but also that the EU regulations (and their equivalents in the US) fundamentally help to improve companies’ operational performance, resilience and competitiveness.

Competitiveness matters. Countries with significant supply chain waste (for example, through flaring, venting and leaking) and with high emissions intensities could lose their edge. Within the LNG supply chain, there is a 100x variation in the ‘flaring intensity’ between the best and most challenged LNG liquefaction plants globally, according to new Capterio research. Africa’s average intensity is many times greater than that of the Americas.

Globally, these three sources of waste account for 7% of all gas supply, some 270bn m³/y (perhaps more than $60bn of annual revenues), according a recent analysis of global flaring data by Capterio.

To put the value of the wasted gas into perspective, consider that AI today consumes 415 TWh/y of electricity according to the International Energy Agency (IEA). But if 50% of the wasted flared, vented and leaked gas (roughly what the IEA says has a negative marginal abatement cost) were put towards AI data centres, they could triple their energy use (adding 780 TWh/y, or 89 GW of continuous power) while also dramatically reducing emissions (on the scale of 3–4 Gt CO₂e emissions).

Projects which reduce methane and flaring are among the fastest and most cost-effective ways to curb global warming in the near term. A recent 165 MW flared-gas-to-power project in Kurdistan, completed in under a year, is a case in point and not only improved grid reliability, but also helped ease regional unrest.

The world is becoming increasingly complex and uncertain. As global LNG supply expands and new methane regulations tighten, producers that fail to curb waste and demonstrate transparency risk losing market access. In contrast, those that innovate to capture and monetise wasted gas can turn a looming oversupply into an opportunity – transforming environmental stewardship into a competitive advantage.

Note: The main article is based on an article originally published on LinkedIn in early October. 

The views and opinions expressed in this article are strictly those of the author only and are not necessarily given or endorsed by or on behalf of the Energy Institute.

• Further reading: ‘Trump versus US LNG? The contradictory state of oil and gas diplomacy today’. The threats of tariffs and trade wars of the Trump 2.0 administration could undermine the foundations of US LNG production. Find out how.
• As the start of the 21st century witnessed growing dialogues around climate change and recognition of the need for renewable energy sources, a contrary trend has emerged from the heart of the US: an upsurge in LNG production. This phenomenon not only marks a significant pivot in the US energy narrative, but also casts a long shadow on the global dialogue concerning environmental sustainability and the transition towards greener energy paradigms.