
The price of liquefied natural gas (LNG) hit a record high throughout the last year. Important insights into the consequences for the LNG sector for 2022 and beyond are revealed by a study of the data.
In the market for liquefied natural gas (LNG), 2021 was yet another first. In contrast to the COVID-19 pandemic’s volatility, unpredictability, and record-low spot LNG prices in 2020, the LNG market experienced a reversal in trends in 2021 (see the sidebar “About the analysis”). Prices reached record highs due to a confluence of factors including the European Union’s worries about the security of supply, the economic recovery, and operational difficulties at many significant liquefaction plants. Compared to 2020, when it was $4.1 per metric million British thermal units (MMBTU), the average spot price for LNG in Asia in 2021 was $17.9, a 435 percent increase. Together, these elements will make 2021 a volatile year, especially for LNG purchasers.
Following a then-record high in January, LNG prices fell in February and March before rising gradually until the end of the year as the LNG market tightened (Exhibit 1). During the last four months of the year, spot prices were on average over $30 per MMBTU. For nearly the whole year, spot prices were higher than normal oil-linked contracts2. LNG spot prices in Asia averaged $17.9 per MMBTU in 2021, a 435 percent increase from $4.1 per MMBTU in 2020.
The extraordinary price recovery in 2021 can be explained by a number of important factors. First, despite the revival of US LNG projects, operational challenges in many plants limited total supply. Second, the global LNG balance tightened due to strong demand from Asia, especially in the first nine months of the year, allowing Asian purchasers to fill storage. Ultimately, Europe’s high gas-to-power demand was caused by poor wind and nuclear capacity, which made it harder for European consumers to restock storage throughout the summer.
Since the persistently high prices from 2021 are continuing into 2022, a major decline is probably in store if either the fundamentals or the impression of market tightness shift. A decrease in demand brought on by a mild winter or spring might be the source of either of these occurrences. The European market, however, lacks the storage capacity to handle any disruptions in supply, which would lead to persistently high prices.