With a Super El Nino, analyst asks: What happens to LNG demand?

A potential "Super El Nino" in 2026-27 may not significantly dampen global liquefied natural gas (LNG) demand, according to Bernstein analysts. Even if the weather event ranks among the strongest ever recorded, the reduction in Asian LNG imports could be limited to less than 1 billion cubic feet per day (BCFD), or approximately 1% of worldwide LNG imports. This projected decrease would be within the bounds of typical year-to-year fluctuations in demand.

The analysts utilized Japan as a representative for Asia, considering its exposure to El Nino-related climate conditions and its heavy reliance on imported LNG. They discovered a robust correlation between heating degree days, a gauge of heating demand, and LNG consumption, but found minimal link between cooling degree days and LNG usage.

In their Super El Nino projection, Japanese winter heating degree days were predicted to drop by 19%, yet LNG consumption was only expected to decrease by 2%, resulting in a revised demand of 9.1 BCFD. The analysts attributed the relatively modest demand response to a substantial baseload component of LNG consumption that remains relatively insensible to weather fluctuations.

Applying the estimated 2% reduction to the broader Asian region would result in a decrease of less than 0.7 BCFD, or about 1% of global LNG imports. This figure is less than historical annual swings in Asian LNG imports, which have ranged from an 11% decline to a 23% increase.

The Bernstein analysts concluded that structural and market factors, such as storage levels, fuel-switching economics, LNG prices, coal markets, and supply disruptions, are expected to exert a stronger influence on demand than El Nino-related temperature changes.