NATURAL GAS MARKETS EXPECTED TO REMAIN TIGHT INTO 2023: IEA

Europe’s quest for LNG supplies to fill their storage ahead of the approaching winter season heated up global competition for supply, even as demand tumbles in Europe and Asian growth stalls, global energy watchdog International Energy Agency (IEA) said in its quarterly Gas Market Report.

Russia, which accounts for around 40% of the total natural gas consumed in Europe, continued curtailment of natural gas flows to Europe pushing international prices to new highs, disrupting trade flows and leading to acute fuel shortages in some emerging and developing economies, with market tightness expected to continue well into 2023, the report revealed.

“Russia’s invasion of Ukraine and sharp reductions in natural gas supplies to Europe are causing significant harm to consumers, businesses and entire economies – not just in Europe but also in emerging and developing economies,” said Keisuke Sadamori, the IEA’S director of energy markets and security, while adding: “The outlook for gas markets remains clouded, not least because of Russia’s reckless and unpredictable conduct, which has shattered its reputation as a reliable supplier. But all the signs point to markets remaining very tight well into 2023.”

The current gas crisis also casts longerterm uncertainty on the prospects for natural gas, especially in developing markets where its use was expected to rise at least in the medium term as it replaced other higheremission fossil fuels, the IEA report said.

European natural gas prices and Asian spot LNG prices spiked to record highs in the third quarter of 2022. This reduced gas demand and incentivised switching to other fuels such as coal and oil for power generation. In some emerging and developing economies, the price spikes triggered shortages and power cuts. Europe’s gas consumption declined by more than 10% in the first eight months of this year compared with the same period in 2021, driven by a 15% drop in the industrial sector as factories curtailed production.

Natural gas demand in China and Japan was almost unchanged in that same period, while it contracted in India and Korea. Chinese gas demand is forecast to increase by less than 2% this year, its lowest annual growth rate since the early 1990s.

Meanwhile, natural gas prices in the United States hit their highest summer levels since 2008, yet North America was one of the few regions of the world where demand increased, supported by higher demand from power generation.

The IEA forecasts that Europe’s LNG imports will increase by over 60 billion cubic metres (bcm) this year, or more than double the amount of global LNG export capacity additions, keeping international LNG trade under strong pressure for the short-to medium-term. This implies that Asia’s LNG imports will remain lower than last year for the rest of 2022.

However, China’s LNG imports could rise next year under a series of new contracts concluded since the beginning of 2021, while a colder-than-average winter would also result in additional demand from northeast Asia, further adding to market tightness.