IEEFA: Déjà vu? The global LNG industry risks repeating the coal bust of the 2010s

Key Findings

• In the early 2010s, the coal industry attracted a large wave of investment, banking on surging coal imports from China and India.

• When this growth didn't materialise, coal oversupply and depressed prices sent major companies bankrupt with significant value destruction for shareholders.

• The LNG industry risks repeating the coal industry's mistakes, as investment levels outstrip future demand, with potentially more severe consequences for the capital-intensive industry.

Peddling a ‘supercycle’ for coal in the 2010s

In the early 2010s, the coal industry was on the rise. Global trade had tripled between 1990 and 2011, with the 2000s experiencing “the largest growth in coal demand in history – greater than the previous four decades combined”. This growth was expected to accelerate after China and India entered the global coal import market (Figure 1). Between 2011 and 2012, global coal imports increased by 13% and coal prices doubled (Figure 2).

Some analysts were projecting this surge to continue, with Wood Mackenzie forecasting in early 2012 that Chinese and Indian imports could reach 1 billion tonnes and 400 million tonnes a year (Mtpa), respectively, by 2030, about four times their 2011 levels. Other analysts were more conservative, expecting little further growth in Chinese imports.

However, the positive outlook dominated company forecasts, with Peabody Energy telling investors in 2012 it expected about a 50% increase in global seaborne trade between 2011 and 2016, with about three quarters of this growth coming from China and India (Figure 1). In its 2011 annual report, Peabody said “enormous energy needs around the world point to the early stages of what we expect to be a long-lived supercycle for coal”.

Figure 1: Chinese and Indian coal imports vs Peabody forecasts (Mt)

An enormous wave of investment followed. Chinese investment tripled between 2007 and 2012, and investment by export-oriented companies quadrupled in the same period (Figure 2).

Figure 2: Coal investment in selected regions (index) and thermal coal price (US$/t)

Three major companies made large, debt-financed acquisitions at the market’s peak in 2011: Peabody Energy purchased MacArthur Coal for US$5.1 billion, Alpha Natural Resources bought Massey Energy for US$7.1 billion, and Arch Coal acquired International Coal Group for US$3.4 billion.

A long-lasting bust with devastating consequences

The expected demand growth from China and India didn’t materialise between 2013 and 2022, as imports to both countries plateaued (Figure 1). As the International Energy Agency (IEA) explained: “Demand for coal in 2019 was lower than in 2013. Coal’s growth prospects were undermined by changes in China’s economic structure and growth, the shale revolution in the United States, the rapid rise of wind and solar PV, and the widespread adoption of policies to fight climate change.”

In 2019, coal demand started growing again in China and India: coal consumption increased by about 1,100Mtpa in China between 2019 and 2024, and more than 300Mtpa in India. However, over that period, domestic production in China and India outpaced imports by a factor of six. As demand for thermal coal plateaus again, the China National Coal Association expects imports to fall rapidly – by 100Mt in 2025 and more than 150Mt by 2030.

Coal prices dropped markedly at the end of 2011, and continuously declined until they reached a trough in 2016. Capital spending dropped steeply, focusing on maintaining production and reducing costs. A large wave of bankruptcies followed, with more than 50 coal companies, including most of the large producers, filing for bankruptcy in the US. In particular, the three companies that made expensive acquisitions in 2011 – Peabody Energy, Alpha Natural Resources and Arch Coal – all filed for bankruptcy. As cash flows worsened, those companies became unable to service the high debts they had taken to make the acquisitions.

Vast amounts of shareholder value were destroyed. Peabody’s shares traded at just US$2 before its bankruptcy announcement in 2016, down from a peak of US$81 in 2008. As an illustration, IEEFA estimated the New York State Common Retirement Fund lost US$108 million in share value between 2011 and early 2014 from just the four largest US coal stocks.

The LNG industry looks on a path to repeat the coal industry’s mistakes

There are many parallels between coal in the 2010s and the global LNG market today. LNG imports nearly quadrupled between 2000 and 2020, fuelled by growing demand from the Asia-Pacific region, which represented 70% of imports in 2024. While demand from traditional markets such as Japan, South Korea and Taiwan has plateaued since 2011, demand from China, India and other emerging Asian markets grew fivefold between 2011 and 2021.

Many oil and gas companies forecast strong growth in LNG demand to continue for decades, driven by Asia. For example, Shell expects LNG demand will increase from about 400Mt in 2024 to 630-718Mt by 2040, BP forecasts LNG demand will reach about 640Mt in 2035 and 700Mt in 2050 in their current trajectory scenario, and ExxonMobil projects LNG demand will double by 2050 (Figure 3).

Figure 3: Historical LNG imports and growth projections by selected companies (Mt)

Those optimistic forecasts are motivating an unprecedented wave of investment in the industry, with more than 220Mt of liquefaction capacity expected to come online between 2025 and 2030. This represents an increase of more than 40% on the 2024 capacity of nearly 500Mt.

However, oil and gas companies provide scant detail on the sources of this demand, and some projects seem to be proceeding without confirmed offtake agreements by end consumers. LNG demand from China, India and emerging Asian markets declined markedly in 2022 after prices spiked following Russia’s expanded invasion of Ukraine. Last year’s net growth was the first since 2021. However, China’s LNG imports dropped again this year – declining by 20% in the first half and continuing to fall thereafter, due to reduced demand and an increase in domestic and pipeline supply.

Growth in LNG demand from Asia faces a number of obstacles – such as extended timelines for new LNG infrastructure projects, fiscal challenges, the global shortage of gas turbines, and growing competition from alternative technologies. Similarly to coal in the 2010s, Asian countries also have a strong focus on energy security, and are prioritising domestic and pipeline supply sources. IEEFA expects these factors will significantly limit the potential shift from coal to LNG in China and India.

The IEA expects nearly 50Mt of LNG overcapacity by 2030 under its 2.4°C-aligned scenario (Stated Policies Scenario), based on just existing and under-construction LNG projects. CEOs of large oil and gas companies have also started expressing concerns over looming oversupply. Patrick Pouyanne of TotalEnergies warned that if all the planned LNG projects in the US were built, it could create a long-lasting glut in the market. Vivek Chandra, CEO of the proposed Gulfstream LNG project in Louisiana, also recently said that “the industry is growing too fast”, which he sees as “a recipe for disaster”.

The consequences of a long-lasting glut would be more severe for the LNG industry than for the coal industry. The LNG industry is highly capital-intensive, with most of the cost of production incurred upfront, while coalmining tends to be less capital-intensive but has higher operational costs. As such, taking capacity offline to match lower than expected demand will require large asset writedowns. In addition, it is much harder to store LNG than coal, meaning there will be limited opportunities to stockpile oversupply.

For companies with LNG projects already under construction, it may be difficult to pull back from the brink of global oversupply. But for their peers thinking of joining them, it’s not too late to correct course and avoid a repeat of the coal industry’s bust. (ends)