Global natural gas demand and output growth falter – IEA

Global energy analysts say natural gas faces growing competition with coal and renewables

(Pic: Shell)

(Pic: Shell)

By Gerard Wynn

Natural gas demand growth fell last year and rising U.S. production “abruptly slowed”, the International Energy Agency said on Tuesday, showing a pause compared with previous breakneck growth.

Global gas demand growth would have been zero last year without unusually cold winters in Europe and the United States.

OCED gas demand grew 1.1% and non-OECD demand by 1.2%, the IEA estimated in its “Medium-Term Gas Market Report 2014”.

“If not for the weather factors, OECD gas demand should have dropped by around 1%; consequently, the world would have exhibited stable natural gas consumption in 2013,” the IEA said.

Global gas demand grew 1.2%, compared with 2% in 2012.

The outlook for gas prices depended on growth in supply of liquefied natural gas (LNG), in a competition with coal which could make a return on the back of weak prices, as well as subsidised renewables.

The IEA noted that coal had grown recently in the United States, underlining the medium-term uncertainty.

“Despite all its well-known qualities, natural gas will find it difficult to gain market shares, notably in the power generation sector.Europe is certainly the best example, with declining gas-fired generation. But the recent recovery in coal-fired generation in the United States and difficulties for gas to compete against coal in Asian countries reinforces this assertion.”

Price volatility

Production growth last year fell in the United States, and global trade in LNG was unchanged following a decline in 2012.

China was the exception, where demand grew 13.3%, accounting for half global demand growth, and output grew 9%.

Global gas demand would rise 14% by the end of the decade, to 4,000 billion cubic metres in 2020 from 3,500 bcm last year, with strongest demand in China and the Middle East.

But that would only see the share of natural gas in global power generation rise 0.5 percentage points.

The United States and Australia would contribute the biggest share of supply growth for the rest of the decade, with Russia suffering from weak demand in Europe and the absence of a pipeline to China.

The supply outlook depended on planned LNG projects coming to fruition.

“Although many LNG projects are at the planning stage, actually very few final investment decisions (FIDs) have been taken since mid-2012. New greenfield projects are increasingly expensive, calling for securing revenues through long-term contracts preferably linked to oil prices.”

But LNG importers were increasingly reluctant to pay such prices.

The longer term picture, in the 2020s, remained positive, as tougher air quality standards continued to drive demand away from coal, oil and diesel in the power generation and transport sectors, the IEA said.

“Using gas for shipping is particularly promising for the post-2020 period. Due to stricter emissions standards being put in place, the sulphur content of fuels used in some specific coastal areas will be limited from 1% today to 0.1% from 2015 onwards. This tighter limit could be extended to other international waters with a 0.5% threshold as soon as 2020, instead of the current 3.5%.”

“Three alternatives compete: use of marine diesel oil (MDO), scrubbers or LNG.”

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