Morgan Stanley has lowered its recommendation on the U.S. liquefied natural gas (LNG) sector to Cautious, flagging the potential for a sizable global supply influx to depress prices and compress returns for exporters.
The bank quantified the prospective build-out as roughly 200 million tonnes per annum (mtpa) of LNG capacity currently under construction worldwide, scheduled to begin commercial operations between 2025 and 2030. That pipeline compares with today's market size of just over 400 mtpa, underscoring the scale of planned additions.
Analysts at the firm see annual supply growth accelerating from around 20 million tonnes in 2025 to a high point of 36 to 38 million tonnes in both 2027 and 2028. In Morgan Stanley's view, that trajectory is likely to move the market into a position of oversupply after the coming northern hemisphere winter.
As a result, the bank expects the Japan Korea Marker - a key LNG benchmark for Asian markets - to retreat to $8 to $9 per million British thermal units after winter, then ease further toward about $7 in 2027 and 2028. Those forecasted price levels, Morgan Stanley warns, would pressure margins on cargoes sold into the market without long-term protection, lower willingness among buyers to sign new long-term sale and purchase agreements, and slow final investment decisions (FIDs) on prospective export projects.
On individual names, the firm adjusted its recommendations and targets. It downgraded Cheniere Energy to Equal-weight from Overweight and reduced its price target for the company to $236, excluding projects that have not reached final investment decision from its base case. By contrast, it initiated coverage of Venture Global at Underweight with an $8 price target, and it raised its price target on Excelerate Energy to $40 from $30, pointing to the latter's steadier cash flows.
Morgan Stanley noted company-level exposure differences to market pricing. Venture Global has outperformed peers this year, with shares up 40% and roughly 20 percentage points of outperformance versus peers, gains the bank attributes in part to seasonal margin improvements and a favorable arbitration outcome. However, about 50% of Venture Global's projected sales from 2026 to 2029 are estimated to be exposed to market pricing, leaving its earnings sensitive to declines in marketing margins.
By comparison, Cheniere is estimated to have roughly 95% of its volumes sold under long-term contracts through the 2030s, which limits its direct exposure to near-term price swings. Despite that relative insulation, Morgan Stanley said that investors could still apply discounts to future expansion projects during periods of oversupply.
Overall, the bank concluded that companies with contracted cash flows and those more closely tied to downstream demand patterns - Excelerate being cited as an example - should demonstrate greater resilience in a softer pricing environment.
Bottom line: Morgan Stanley's shift to a cautious stance reflects concern that a substantial wave of new LNG supply will push benchmark Asian prices lower, constraining margins on uncontracted cargoes, reducing appetite for long-term deals and inhibiting new project FIDs.