Take Steps Now to Make Natural Gas Markets More Resilient, IEA Urges

---

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--European and global gas markets proved to be resilient and were able to gradually rebalance during the just-completed first quarter, but that rebalancing was the result of several factors that don't appear likely to happen again this year, according to a new report from the International Energy Agency (IEA) (Paris, France).

Therefore, the agency recommended that nations, particularly in Europe, take further steps to shore up the resiliency of their gas markets, to provide an added measure of energy security in case Russia further lowers its exports of gas this year, as it appears poised to do.

Specifically, the IEA said in its Gas Markets Report, Q2-2023, released May 4, that "there is a continued need to reduce gas demand in a structural manner through improved energy efficiency measures, accelerated deployment of renewables and heat pumps, as well as behavioral changes. Short-terms options to enhance gas supply and optimize the use of gas infrastructure should be promoted, including via the reduction of methane leaks and gas flaring."

Although gas markets have an improved 2023 outlook, that is "no guarantee against future volatility and should not be a distraction from measures to mitigate potential risks," the agency wrote. "Global gas supply is set to remain tight in 2023 and the global (gas) balance is subject to an unusually wide range of uncertainties. These include adverse weather factors, such as a dry summer or a cold fourth quarter, lower availability of liquefied natural gas (LNG) and the possibility of a further decline in Russian pipeline gas deliveries to the European Union."

Factors that allowed gas markets to rebalance in recent months include a warmer-than-average winter, increased supplies of liquefied natural gas (LNG), ample supplies of gas in storage, reduced demand for gas in Asia and sharply lower gas prices.

Click on the image at right to see dramatic price declines for gas in three major international markets between December 15, 2002 and March 30, 2023.

The sharp price decreases resulted from slightly lower global demand for gas in the just-completed winter heating season. Natural gas consumption in advanced economies in Europe fell by an estimated 55 billion cubic meters (Bcm), or nearly two trillion cubic feet (Tcf), during the 2023-2023 winter heating season versus the comparable year-earlier period. That's the steepest drop in absolute terms for any winter season on record, the IEA said.

Click on the image at right to see changes in global gas demand over the last four winter heating seasons, broken down by region.

That 55-Bcm reduction in gas use by European nations that are members of the Organization of Economic Cooperation and Development (OECD) (Paris, France) reflected reductions from all segments of the economy: residential and commercial customers, power companies and industrial firms. Fuel switching, driven by higher prices last year, and efficiency gains were significant contributors to the reductions during the winter 2022-2023 heating season. A milder winter also played a role in lowering gas use.

Click on the image at right to see how various segments contributed to OECD Europe's 55 Bcm reduction in gas use.

LNG supplies have meaningfully increased in four of the last five winter heating seasons, helping offset the dramatic cutbacks in Russian pipeline exports of gas to Europe in 2022 and 2023. That added LNG supply, coupled with lower global demand, had a moderating effect on gas prices. Also, the "war premium" for LNG in the immediate aftermath of Russia's invasion of Ukraine vanished.

Full-year demand for natural gas in Asia fell sharply in 2022, but most Asian countries are expected to increase their use of gas this year, the IEA cautioned. For more on that, see March 23, 2023, article - China Remains Critical Variable in Global Gas Market in 2023.

Russia's invasion of Ukraine came as the 2021-2022 winter heating season was ending. Russian pipeline flows were dramatically cut in the 2021-2022 and 2022-2023 winter heating seasons, and Europe sharply increased its reliance on LNG.

But there's reason to believe that what saved Europe's gas market last year won't be available this year. Specifically, global LNG supply is expected to rise only about 4% in 2023, roughly 20 Bcm or about 0.71 Tcf. This would not be sufficient to offset the expected reduction in Russia's piped gas supplies to Europe, the report said.

The IEA said greater energy security lies in continuing to "structurally reduce gas demand through improved energy efficiency measures, accelerated deployment of renewable energy and heat pumps, as well as changing energy usage behavior. Short-term options to enhance gas supply and optimize the use of gas infrastructure should be promoted, including via the reduction of methane leaks and gas flaring."

The Gas Markets Report, Q2-2023, report also urged nations to decarbonize their gas supplies more rapidly through increased use of "green" hydrogen, which is created through electrolysis using renewable electricity. The IEA calls this "E-methane." Since green hydrogen or e-methane is interchangeable with natural gas in power plants to a certain degree, the Paris-based energy agency said wider use of it would limit the need for retrofitting existing natural gas plants and networks while enhancing system and seasonal flexibility. However, it added, green hydrogen's "high production costs require further technological development and policy support, including through closer dialog between future producers and consumers."

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).