According to the latest gas market report from the International Energy Agency (IEA), lower prices will fuel an increase in natural gas demand over the next five years, following a slowdown in 2013 – 2014.
However, this growth in demand will still fall short of previous forecasts, the IEA warned.
The report sees global demand rising by 2% per year by the end of the forecast period, compared with 2.3% projected in last year’s outlook. A major reason for the downward revision is weaker gas demand in Asia, where continuing high gas prices are causing consumers to choose other options.
Maria van der Hoeven, IEA Executive Director, explained: "One of the key – and largely unexpected – developments of 2014 was weak Asian demand. Indeed, the belief that Asia will take whatever quantity of gas at whatever price is no longer a given. The experience of the past two years has opened the gas industry's eyes to a harsh reality: in a world of very cheap coal and falling costs for renewables, it was difficult for gas to compete."
Oil indexed prices
Asian gas prices are indexed to oil prices. For several years, as oil prices hovered over US$100/bbl, Asian consumers had to pay a hefty premium for their gas compared with buyers elsewhere. The recent rout in oil prices has reached natural gas markets in Asia and allowed the Asian premium to narrow substantially. However, demand for gas in Asia may not recover as quickly as the drop in prices.
In the short-term, gas demand will benefit from falling prices. However, the report adds that the long-term outlook for gas has become more uncertain, particularly in Asia. A few countries in the region have decided to move ahead with plans to expand coal-fired power generation instead of gas-fired generation.
On the supply side, the report notes that lower oil prices will have a considerable impact on gas upstream and infrastructure investment. Companies are cutting capital expenditures and refocusing on core assets with fast returns, which will lead to slower production growth over the medium-term. Due to their capital-intensive nature and long lead times, LNG projects are soft targets for investment reductions and several are likely to be delayed or cancelled. If current low prices persist, LNG markets could start tightening substantially by 2020, with demand gradually absorbing the large supply upswing expected over the next three years.
In the short-term, gas markets will need to cope with a flood of new LNG supplies. The report projects global LNG export capacity to increase by more than 40% by 2020, with 90% of the additional exports coming from Australia and the US.
As LNG supplies increase over the next five years, Europe is set to offer an important outlet. The region's LNG imports will roughly double between 2014 and 2020. Despite the foreseen increase in LNG intakes, the report does not anticipate a meaningful reduction in European imports from Russia, which will remain within a 150 - 160 billion m3 range. In OECD-Europe, domestic gas production is projected to continue to fall and to stand 25% below its 2010 level by 2020.
Edited from IEA press release by Katie Woodward
Read the article online at: https://www.lngindustry.com/liquid-natural-gas/04062015/iea-revises-natural-gas-demand-outlook-889/