Weak Asian Markets to Weigh on Global Gas Demand Growth
Global gas demand will slow to an average of 2 percent per year for next five years due to weakening Asian markets, the International Energy Agency (IEA) said Thursday in its 2015 Medium-Term Gas Market Report.
The IEA had last year projected a slightly higher growth rate of 2.5 percent.
"One of the key – and largely unexpected – developments of 2014 was weak Asian demand," said IEA Executive Director Maria van der Hoeven. "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."
Asian gas prices have declined in recent months following a rout in global oil prices. However IEA feels that demand for gas in Asia may not recover as quickly as the drop in prices.
In the short term, gas demand will benefit from plunging prices, but the report adds that the long-term outlook for gas has become more uncertain – especially in Asia. A few Asian countries have decided to move ahead with plans to expand coal-fired power generation instead of gas-fired generation. "For the fuel to make sustained inroads in the energy mix, confidence in its long-term competitiveness must increase," according to the report.
On the supply side, the report notes that lower oil prices will have a major impact on gas upstream and infrastructure investment. Companies are cutting capital expenditures and refocusing on core assets with fast returns, which will unavoidably lead to slower production growth over the medium term.
Several LNG projects are likely to be delayed or even cancelled, the report states adding that 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 percent by 2020, with 90 percent of the additions coming from Australia and the United States.
As LNG supplies surge over the next five years, Europe is set to offer an important outlet. The report projects that 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 locked in a 150-160 bcm range.