IEA Sees Slowing Global Demand Growth for Natural Gas

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Global natural gas demand growth is expected to slow over the 2022-2026 period following years of strong demand growth, the International Energy Agency (IEA) (Paris, France) said in a report released October 10. In its Gas 2023 Medium-Term Growth report, the agency predicted overall global demand would increase by an annual average of about 1.6% per year between 2022 and 2026, down from an average of 2.5% a year between 2017 and 2021. The report said skyrocketing gas prices following Russia's invasion of Ukraine in February 2022 triggered fuel switching, efficiency deployments, policy shifts and other trends that will dampen global demand for natural gas for years.

The IEA report said gas demand in "mature" markets, including North America, Europe, Australia, Japan, Korea, New Zealand and Singapore, peaked in 2021 and is slated to fall about 1% per year through 2026. It cited the growth of renewable electric generation and improved energy efficiency as key factors driving down demand. For Europe, the loss of piped gas from Russia, following its invasion of Ukraine, pressed governments to urgently seek alternative supply sources and implement policies designed to lessen demand for Russian exports.

Partly offsetting this anticipated slowdown in "mature" markets is expected stronger demand growth in fast-growing economies, including China, as well as gas-rich nations in the Middle East and Africa. The IEA predicted that China will account for almost half of the overall growth in global gas demand between 2022 and 2026. It will be using that fuel to power its industrial production, power sector and urban areas.

"After their heyday between 2011 and 2021, the world's gas markets have entered a new and more uncertain period that is likely to be characterized by slower growth and higher volatility," said Keisuke Sadamori, IEA director of energy markets and security. He added that shifting use patterns "could lead to a peak in global demand for gas by the end of this decade."

In a statement accompanying the release of the report, Sadamori added: "Different trends are playing out across different regions, with demand declining in mature markets but continuing to grow in emerging and developing economies. We expect a substantial increase in new liquefied natural gas (LNG) capacity coming online in the years ahead, which should ease some of the tightness and security of supply concerns that markets have been experiencing since Russia started withholding supplies in 2021."

The European gas market, stable over the 2016-2019 period, experienced significant volatility in the years before the Russo-Ukrainian war. But that commodity's volatility--both upward and downward--since the start of that war in early 2022 has been remarkable: prices immediately shot up more than 200% on a year-over-year basis only to shed half that gain later the same year after replacement supplies of gas were arranged, chiefly through U.S. exports of LNG.

Click the image at right to see a chart of European gas market price volatility.

As Russian pipeline deliveries of gas to Europe plummeted, LNG exports rose to partly offset the loss. The IEA report sees the LNG trade steadily expanding through the 2026 period. While the projected 25% growth in LNG trade can't completely overcome the loss of Russian pipeline gas trade with Europe, the IEA predicted that by 2026, it will have expanded to cover about 75% of that lost gas.

Click on the image at right to see the IEA's prediction about the steady expansion of the global LNG trade.

Over the next few years, the Gas 2023 Medium-Term Growth report predicted the U.S. would consolidate its position as the world's largest LNG exporter as new liquefaction plants come online. The expansion of gas supply will dampen gas price volatility and provide an added measure of energy security. A more globalized gas business will improve energy resiliency and the ability of suppliers and consumers to respond to supply and demand shocks, it said.

Dampened price volatility will enable gas to regain its footing in China and other Asian markets over the next few years, more than offsetting forecasted slight declines in usage in mature North American, European and Asian economies, the report said.

Click on the image at right to see IEA's prediction of regional gas demand through 2026.

The energy price shock of 2022 is expected to have long-lasting effects, the report projected. Global gas demand rose by nearly 400 billion cubic meters (or about 14.1 trillion cubic feet) over the 2017-2021 period. But as the IEA estimated demand growth for the 2022-2026 period, it saw demand rising only a little over 300 billion cubic meters, or roughly 10.6 trillion cubic feet.

A certain amount of that future demand destruction is hard-wired into some economies, such as the switch from gas-fired generation to renewable energy, or efficiency measures that have been installed in commercial, industrial and residential markets. Building electrification is another trend that is expected to cut demand for gas, in some markets more than others.

While the agency acknowledged that global gas prices decreased during the first three quarters of 2023, it expressed some concern about the coming winter heating season. "Steep demand reductions in Europe and some Asian markets helped reduce strains, but supplies remain tight. The increase in LNG supply has not been enough to offset the sharp declines in deliveries of pipeline gas from Russia to Europe. As such, the risk of price volatility, particularly in the event of a cold winter, is cause for concern. Europe's gas storage sites entered the winter heating season at 96% capacity. However, this is no guarantee of stable prices throughout the season, particularly in the event of exceptionally cold weather."

A critical factor in the report's prediction of slowing demand for gas is the rate of global economic growth, which has gyrated wildly in recent years. The COVID-19 pandemic caused the global economy to shrink 3.1% in 2020. But in 2021, as vaccines emerged and consumers engaged in what economists called "revenge" spending for vehicles, dining and entertainment, luxury goods and travel, the world's gross domestic product (GDP) grew about 6.4%. Russia's invasion of Ukraine in early 2022 and sharply higher interest rates cut that year's global GDP growth in half, to about 3.3%.

Looking forward, the IEA said it expected the global economy to grow by less than 3% in 2023 and 2.6% in 2024, less than the rate of growth for 2022. Over the 2025-2026 period, the agency said global GDP would average about 3.4% per year, in part due to the expectation that slowing economic growth would cause central banks to ease interest rates.

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