European gas demand is expected to decline this year as continued high prices make coal more competitive for power generation, while Asian demand growth could slow, the International Energy Agency (IEA) said on Monday.
Last year, European gas consumption increased by an estimated 5.5 per cent to 552 billion cubic metres (bcm).
However, demand is expected to fall by about 4.5 per cent this year to 527 bcm, partly driven by reduced burning of gas in the power sector which could fall by 6 per cent from 2021, the IEA said in its quarterly gas market report.
“Gas-fired power generation is expected to decline amid the strong expansion of renewables, while high gas prices continue to weigh on its competitiveness vis-a-vis coal-fired generation,” the report said.
European and Asian gas prices climbed to record highs last year, while US prices rose to the highest in a decade, driven by reduced supply, low storage levels, infrastructure outages and competition for liquefied natural gas (LNG) cargoes.
Although European coal and EU carbon prices also jumped, they lagged behind the spike in gas prices, causing short-term marginal costs to shift in favour of using coal to generate electricity.
In Europe, lower-than-usual pipeline supplies from Russia, coupled with concerns about supply disruption in the event of sanctions against Russia if it invades Ukraine, have helped to keep prices elevated into this year and still incentivise more coal use in countries that can shift between fuels.
This year, European gas and Asian LNG prices are expected to average $26 per metric million British thermal units (mmBtu) and $27/mmBtu respectively – both all-time high annual averages – due to continued low stock levels and reduced supply, the IEA said.
Currently, Dutch gas at the TTF gas hub for March is around $30/mmmBtu, while Asian spot LNG for March is $27/mmBtu.
High prices are expected until the middle of the year and then could decline if supply availability improves, the IEA said.
In the US, however, Henry Hub prices are expected to average close to 2021 levels, at $4/mmBtu.
Despite a drop in Russia's pipeline exports in the fourth quarter last year, in 2021 overall the country's pipeline exports to Europe, including Turkey, rose by 4 per cent year-on-year, while flows to the EU declined by 3 per cent.
This year, overall Russian production is estimated at 763 bcm, up from 761 bcm last year, the report said.
In Asia, gas demand increased by 7 per cent last year but is expected to slow to 5 per cent growth at 950 bcm this year. Chinese demand jumped by 12 per cent last year amid a rebound in economic activity but could moderate to 8 per cent growth at 394 bcm this year due to slowing economic growth, higher import prices and more normal seasonal weather.
India's gas demand is expected to increase by 8 per cent this year, following a 5 per cent rise in 2021. In North America, gas demand inched up by 0.9 per cent last year and is forecast at about 1 per cent growth this year at 1,091 bcm. - Copyright The Financial Times Limited 2022
