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Global gas use to rise on low prices, but below expectations: IEA

Highlights

Global natural gas demand is expected to re-accelerate in coming years on the back of lower prices, after a marked slowdown in 2013-2014, but the improvement will be below earlier expectations, the International Energy Agency said Thursday.

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The IEA, publishing the 2015 edition of its Medium-Term Gas Market Report, said that it expects demand to grow 2% on average between 2014-2020, slower than the 2.3% average over the previous 10 years.

Demand in 2020 is expected to total 3.926 Tcm, up from 3.495 Tcm in 2014.

In OECD countries such as Europe and the US, demand in the power sector is being challenged by "sluggish" electricity growth and increased renewables. Japanese demand will fall as nuclear power plants return to service, some four years after the Fukushima disaster.


The IEA said that "very high import prices" in 2013-2014 "undermined" gas demand growth, especially in the power sector, with several Asian countries taking active steps to limit the share of gas in their power sectors, prioritizing coal instead.

Lower prices will help gas build back up its share. But the IEA said there is not enough long-term trust in gas yet in much of developing Asia. "The gas industry must prove it can deliver gas supplies at price levels substantially below those that have prevailed in the recent past," the IEA said.

IEA executive director Maria van der Hoeven added in a statement: "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."

The Platts Japan Korea Marker, showing the price of spot gas to northeast Asia, averaged $16.56/MMBtu in 2013, fell to $13.86/MMBtu in 2014 and has averaged $7.59/MMBtu in the current year to date.

US Henry Hub front-month gas averaged around $3.79/MMBtu during 2013-2015.

China's gas demand growth slowed to single digits in 2014, from an average 14% in the five years before, the IEA said. It expects a re-acceleration from these lows, to an average annual increase of 10% through the rest of the decade.

LOWER OIL PRICES SLOW GAS OUTPUT GROWTH

Lower oil prices are slowing growth in production, the IEA said, as companies scale back capital expenditure and cancel low-return projects.

"Lower oil prices will have a major impact on gas upstream and infrastructure investment," it said. "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." LNG projects in particular could suffer, due to the high capital requirements for liquefaction. "Today LNG prices simply do not cover the capital costs of new plants, the IEA said.

"Several projects have already been scrapped or postponed, and the number of casualties will rise if prices do not recover," it said.

The decisions made in the next two years will impact supplies early in the 2020s, due to the time taken to bring new projects onstream, and the IEA said that "if current low prices persist, LNG markets could start to tighten up substantially by 2020."

But there will be a "flood of new supplies" in the near-term. New capacity in the years to 2020 will add more than 40% to today's LNG output, the IEA said, with half of the new supply due on in 2016-2017.

Total LNG trade in 2020 is expected at 473 Bcm of gas.

"Excessive supplies will have to be absorbed via a price-driven response on the demand side," the IEA said, noting prices have already halved since 2014.

The US, however, is showing robust output, with "an unparalleled ability to absorb shocks." US gas production increased in 2014 and has remained on an upward trend in 2015, the IEA said.

Falling service costs have helped the industry cope with the impact of lower oil prices.

The IEA says the outlook for production in the Appalachian Basin in particular "remains bright."

--Alex Froley, alex.froley@platts.com
--Edited by Lisa Miller, lisa.miller@platts.com

Similar stories appear in International Gas Report. See more information at http://www.platts.com/Products/internationalgasreport