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Super El Nino Poses Minimal Threat to Global LNG Demand, Bernstein Says
Summary
A forecast 'Super El Nino' in 2026-27 is expected to have a negligible impact on global liquefied natural gas demand, with any reduction falling within normal yearly fluctuations, according to a new analysis from Bernstein.
A forecast "Super El Nino" event is unlikely to significantly reduce global demand for liquefied natural gas, as warmer winters in Asia would only have a marginal effect on consumption, according to a new research note from Bernstein.
Analysts at the firm project that even one of the strongest El Nino events on record would cut Asian LNG imports by less than 1 billion cubic feet per day (BCFD). This figure represents only about 1% of total global LNG imports, a dip that Bernstein considers to be within the range of normal year-to-year demand fluctuations.
Japan Model Shows Limited Impact
To model the potential effects, Bernstein used Japan as a proxy for the broader Asian market, citing its high reliance on LNG imports and its exposure to El Nino weather patterns. The analysis found a strong relationship between heating demand and LNG consumption but noted virtually no correlation between cooling demand and gas use.
Under a "Super El Nino" scenario, the analysts estimate that Japanese winter heating degree days—a measure of heating demand—would fall by 19%. However, this would translate to a much smaller decline in estimated LNG consumption of only 2%, to 9.1 BCFD. Bernstein attributed this muted response to a large baseload component of LNG consumption for power and industry that remains insensitive to weather.
AdMarket Fundamentals Outweigh Weather
Extrapolating this 2% reduction to the rest of Asia would result in a regional import decline of less than 0.7 BCFD. The analysts emphasized that this is minor compared to historical annual swings in Asian imports, which have ranged from an 11% decline to a 23% increase.
The research note concluded that other "structural and market factors" are likely to have a much greater influence on LNG demand than temperature changes from El Nino. These factors include:
- Natural gas storage levels
- Fuel-switching economics between gas and other sources like coal
- Global LNG prices
- Potential supply disruptions
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