Wednesday, 8 June 2016
IEA sees slower global gas demand growth to 2021
BRUSSELS: Growth in natural gas demand will slow to an average 1.5 per cent a year globally through 2021, as stagnation in Europe and uncertainty about Chinese consumption offsets robust growth in India, the International Energy Agency (IEA) said on Wednesday. After growth of 2.5 per cent over the last six years, gas is facing competition from renewable energy and cheap coal, meaning the global gas market will remain over supplied. In Europe, Russiangas export monopoly Gazprom will be challenged by the prospect of a glut of liquefied natural gas (LNG) as export capacity rises 45 per cent 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 cent 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 as lower gas prices cut into investment. Longer term, the US shale industry is expect to help drive recovery in production to reach 100 billion cubic metres (bcm) by 2021, or one-third of the global supply rise over the period. 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 "to adopt a more competitive pricing mechanisms". The trend toward hub pricing is being fuelled by Asian nations entering the spot market to sell excess supply after weaker-than-expected growth. 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.
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