Five-year gas demand projections revised downward by IEA
It is becoming increasingly difficult for natural gas to compete amid the availability of “very cheap” coal and the falling costs of renewable energy, the International Energy Agency (IEA) states in a new report, in which it revises downwards its five-year forecast for gas demand.
The agency, which initially believed that lower gas prices would drive demand following a marked slowdown in 2013 and 2014, now expects the average growth in demand for global natural gas over the next five years to contract from 2.3% a year to 2%.
The IEA’s 2015 ‘Medium-Term Gas Market Report’ notes that, in the short term, the gas market will benefit from plunging prices; however, the long-term outlook for demand is less optimistic amid uncertainty – especially in Asia.
The report highlights unexpected weaker gas demand in Asia last year, where “persistently high gas prices” results in consumers replacing gas consumption with other options and industry expanding its coal-fired power generation instead of gas-fired generation capacity.
“Indeed, the belief that Asia will take whatever quantity of gas at whatever price is no longer a given,” said IEA executive director Maria van der Hoeven.
The agency is sceptical of a quick recovery in demand for gas in Asia despite the rout in oil prices – to which Asia’s gas prices are indexed – in mid-2014, which enabled the region to significantly narrow its hefty premium on the gas prices enjoyed by other parts of the world.
Meanwhile, the lower oil prices will impact on gas upstream and infrastructure investment, as companies cut capital expenditure on more costly, low-return projects and refocus on core assets with fast returns.
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