The global liquefied natural gas (LNG) market is on track to flip from oversupplied through 2022 to “materially undersupplied” by 2024, boding well for U.S.-based projects seeking to reach a final investment decision (FID) later this year, according to analysts with Raymond James & Associates Inc.

For 2020, global LNG will be about 3 Bcf/d oversupplied, with the market likely to remain there through 2022, a team of analysts including Justin Jenkins, Pavel Molchanov and J.R. Weston said in a research note Monday.

“This is largely a function of demand: healthy but not exuberant demand growth in Asia, partially offset by the structurally problematic demand picture in Europe,” analysts said. “Looking forward, we have not attempted to make an explicit call on how much capacity will reach FID in the near future. What we can say with confidence is that, assuming zero new FIDs, the global LNG market will become increasingly undersupplied.

“Specifically, we think the script flips in 2023, with 2024 shaping up to be a materially undersupplied market, with the deficit reaching 4 Bcf/d in 2025.”

Given a minimum lead time of four years for large-scale projects to enter service, this sets the stage for a handful of LNG proposals to follow on the heels of Golden Pass LNG and reach FID this year. This applies to a “very long list of LNG projects on the drawing board -- especially in North America, but also in frontier markets with stranded gas,” according to the analyst team.

The firm’s macro outlook remains bullish on oil prices and bearish on gas prices, providing a “favorable backdrop” for domestic LNG. A strong oil price recovery, reaching a cyclical peak in 2020, should drive up oil, gas and natural gas liquids production “well ahead of market views.”

“This ‘perfect storm’ for U.S. LNG exports -- plentiful low-cost U.S. associated gas production and upside to international LNG pricing -- remains somewhat underappreciated given the near-term global LNG oversupply, in our opinion,” the Raymond James analysts said.

Meanwhile, recent announcements of offtake agreements and a more streamlined regulatory approval process at FERC also improve the outlook for U.S.-based projects that may be sanctioned in 2019.

LNG export developers have encountered “much more friendly environments” in 2018 and early 2019 for signing offtake agreements, according to the Raymond James team, which pointed to customer agreements inked by Cheniere Energy Inc. and Tellurian Inc., among others.

The Federal Energy Regulatory Commission’s efforts to better coordinate with the Pipeline and Hazardous Materials Safety Administration during the LNG review process have yielded results, the analysts said, counting more than 10 permitting updates for proposed projects since the change was implemented last year.

For domestic LNG projects to reach FID, developers need full permitting from FERC and the Department of Energy, “sufficient offtake agreements, and financing solutions all in hand,” analysts said. “With a steady flow of offtake announcements in 2018 and a streamlined FERC timeline, we feel comfortable with the outlook for potential FIDs in 2019.

“Moreover, considering the four-year (minimum) lead time on these large-scale projects, regulators and developers need to get to work quickly so that other U.S.-based projects can join Golden Pass as part of the supply response necessary to satisfy LNG demand growth towards the mid-2020s.”

However, several factors could threaten the firm’s bullish mid-2020s outlook for exporters, including the U.S.-China trade war, competition from Russian pipeline gas in China, growth of renewables in Asia and an uncertain outlook for demand in Europe, according to the analysts.

That said, “growing electricity consumption in Asia, alongside ongoing decarbonization -- particularly due to retirements of coal-fired power plants -- directionally bodes well for LNG demand. China in particular has a stated objective of constructing” 250 million metric tons/year of regasification capacity by 2035, the Raymond James team said. “This equates to a whopping roughly 35 Bcf/d potential opportunity set for LNG exporters!

“...Similarly, India is building out the infrastructure to import around 9-10 Bcf/d by 2030...We forecast that global LNG demand will increase by 7% in 2019 and 9% in 2020 before slowing down into mid single-digit growth.” Longer-term, “we forecast that demand growth will average 3.6%/year during 2020-2025, less than half of the 8.9% during 2015-2020.”