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IEA Forecasts Slower Global Gas Demand Growth

IEA Forecasts Slower Global Gas Demand GrowthIEA Forecasts Slower Global Gas Demand Growth

Growth in natural gas demand will slow to an average 1.5% a year globally through 2021, as stagnation in Europe and uncertainty about Chinese consumption offset robust growth in India, the International Energy Agency said on Wednesday.

After growth of 2.5% over the last six years, gas is facing competition from renewable energy and cheap coal, meaning the global gas market will remain over supplied, Reuters reported.

In Europe, Russian gas export monopoly Gazprom will be challenged by the prospect of a glut of liquefied natural gas as export capacity rises 45% by 2021, even as demand drops in key markets in Japan and Korea.

"Developments are pointing to a period of oversupply," IEA head Fatih Birol said in the agency's annual medium-term gas outlook. "The next five years will witness a reshaping of global gas trade."

Growth will be led by India, at an average of 6% per year, while Chinese demand is likely to recover, spurred by a switch from coal to gas-fired power generation, the IEA said.

However, new supplies are also limited, as production shrinks in Europe and US gas production hovers around flat next year while lower gas prices cut into investment.

The IEA puts forward prices of shipping US LNG to Europe below those of oil-linked Russian gas or hub prices, "creating a stark change in Gazprom's operating environment", it said.

Although its exports to Europe are locked in via take-or-pay contracts, the IEA estimates Gazprom needs to win an additional 15 to 20 bcm to hang on to its market share last year.

It added that cheap spot prices would likely trigger tensions with European clients over long-term contracts and force it "to adopt a more competitive pricing mechanisms".

Given the global oversupply, the IEA questioned the economics of Gazprom's plan to expand the Nord Stream pipeline to Germany, bypassing Ukraine, as well as its implication for Europe's security of supply.

In contrast with the network of pipelines crisscrossing Ukraine, the plan to double Nord Stream's capacity would see 110 bcm per year supplied via one route to Germany.

Despite tepid demand, the IEA sees net imports in Europe rising by 40 bcm by 2021 amid falling domestic production.

 

Financialtribune.com