In a new report from Columbia University’s Center on Global Energy Policy, fellow Teddy Kott and senior researcher Akos Losz examine how and why the global liquefied natural gas (LNG) market has confounded expectations over the past three years.

A boom in exports from the United States and Australia led to forecasts that the global LNG market was headed into an extended period of oversupply. But the reality has been that while prices have come off, there are real signs that the market has not yet loosened as many had expected.

Imports to Europe represent a crucial barometer for the state of physical LNG balances, and European LNG imports have not increased significantly in recent years, suggesting that the market has remained physically tight despite the rapidly growing supply.

Meanwhile, a lower oil price environment has dragged down the soft ceiling for LNG prices. When assessed as a percentage of oil prices, LNG prices have been only slightly weaker than during the three years of very high prices in 2011–14.

The authors outline several key reasons for the tighter LNG market, and what it may mean.

An underappreciated growth of demand in a collection of twelve small and emerging LNG importers has absorbed a remarkable amount of LNG during the past three years. While Chinese demand has captured industry headlines, these emerging importers, which represented just 3.3 percent of global LNG demand in mid-2014, have accounted for nearly 60 percent of net global demand growth since then.

The expansion of Floating Storage Regasification Unit (FSRU) capacity has been the most important dynamic underpinning this source of new demand growth. FSRUs reduce the initial investment necessary to access the waterborne market, making them attractive options for new importers. The shorter lead times for FSRU-based facilities have allowed importers to commence or expand LNG purchases much faster than traditional land-based facilities would.

The entry of new LNG importers introduces credit and governance risks to the market and to specific projects. The participation of multilateral organizations can help to overcome some of the key financial constraints that would otherwise prevent a country from becoming an LNG importer.

The new LNG buyers should also introduce greater medium-term flexibility on the demand side of the LNG market while also reducing shorter-term market flexibility over a one-year time horizon as the new importers lock in demand.