Investing.com -- The global LNG market appears to be at a significant turning point after years of constrained supply and sluggish demand growth.

As per Bernstien, 2025 will mark the beginning of a major shift in the gas cycle, driven by a substantial increase in supply capacity and a more dynamic demand environment across key regions.

After two years of stagnant growth, global LNG demand is projected to rise by 4.5% in 2025 to 412 million tonnes per annum, up from 394 in 2024.

The primary drivers of this growth are increased consumption in Asia and restocking of gas inventories in Europe.

Looking further ahead, 2026 is expected to see an even sharper increase, with demand rising by 8%. However, this growth will be met with an unprecedented expansion in supply, with more than 130 MTPA of new LNG capacity set to come online between 2025 and 2027, amounting to a 33% increase in total global capacity.

The impact of this supply surge is already being felt in the market. Over the past three months, new capacity additions totaling 25 MTPA have commenced operations, including major projects like Tortue LNG (2.4 MTPA), Plaquemines LNG Phase 1 (13.3 MTPA), and Corpus Christi Stage 3 (10 MTPA).

By the end of 2025, another 30 MTPA of new supply will be added, including the much-anticipated LNG Canada Train 1 (14 MTPA) and Golden Pass LNG (15.6 MTPA).

These expansions are expected to exert downward pressure on LNG prices as global supply outpaces demand growth.

Despite the supply increase, the LNG price environment remains elevated for now.

Spot LNG prices are currently trading at $13-14 per million British thermal units (mmbtu), supported by lower-than-usual European gas inventories, which stood at 39% full at the end of the winter season.

While this is in line with long-term averages, it marks the lowest level seen in the past two years.

Meanwhile, Asian gas inventories remain above normal levels, which could dampen the region’s appetite for additional spot purchases.

Bernstein forecasts that spot LNG prices will average $12/mmbtu in 2025 before falling to $8/mmbtu in 2026.

If the market struggles to absorb the wave of new supply, prices could drop further to the marginal cash cost of $5-6/mmbtu, potentially leading to production shut-ins, particularly in North America.

One of the biggest risks to the LNG market remains the potential return of Russian pipeline gas to Europe.

Since 2021, Russian gas flows into Europe have fallen by 85%, from 130 billion cubic meters per year (bcm/yr) to just 18 bcm/yr.

This reduction, equivalent to 85 MTPA in LNG terms, has significantly reshaped global gas trade flows.

While a ceasefire in Ukraine could open the door to the return of Russian gas, Bernstein’s base case scenario assumes that additional Russian volumes will remain limited in the near term.

However, any unexpected increase in Russian pipeline exports would put further downward pressure on LNG demand and prices.

By 2026, the LNG market is projected to transition from a seller’s to a buyer’s market. This shift is driven by substantial new supply additions over the next three years, indicating a prolonged period of global gas market oversupply.

This dynamic will likely benefit downstream gas consumers, such as utilities and industrial buyers, at the expense of upstream producers.

Companies with high exposure to the spot LNG market, such as Woodside (OTC: WOPEY ) and Equinor, could see profitability pressured, while Asian gas distributors, including China’s ENN, CR Gas, and Kunlun Energy, may benefit from lower procurement costs.

Despite the expected oversupply in the medium term, the longer-term outlook remains robust.

More than 70 MTPA of LNG capacity is targeting final investment decision (FID) approvals in 2025, which should be sufficient to meet projected demand growth through 2030.

However, with over 200 MTPA of projects vying for FID in the coming years, not all will move forward, especially if market conditions remain weak.

Bernstein suggests that approximately 128 MTPA of new projects will be required by 2040 to meet long-term demand growth, assuming a moderate annual increase of 1% in global LNG consumption.