Gas price and demand both on decline

GLOBAL gas demand growth has slowed, despite much lower gas prices. This is how the International Energy Agency summarises the situation in its annual Medium Term Gas Market Report.
Gas price and demand both on decline Gas price and demand both on decline Gas price and demand both on decline Gas price and demand both on decline Gas price and demand both on decline

The IEA said that following stagnation in 2014, global gas demand is estimated to have returned to growth in 2015. Expansion has remained well below the historical average, however: since 2012, global gas demand has increased by just 1% a year, much slower than the 10-year average of 2.2%.

"This report forecasts demand to reach 3.9 trillion cubic metres in 2021, increasing at an average annual rate of 1.5%, equivalent to an incremental 340bcm between 2015 and 2021. Slower primary energy demand growth and the decline in the energy intensity of the world economy are lessening demand growth for all fossil fuels, including gas."

The report said the energy transformation in China and subdued economic growth in advanced economies were creating headwinds against energy demand in general.

"Low fossil fuel prices have so far failed to compensate for them. Slowing primary energy demand growth means that the share of gas in the world's energy mix will still increase marginally over the next five years, despite slower global gas demand growth.

"Particularly in the power sector, there are factors that are constraining the ability of gas to expand more quickly in spite of low prices. In Asia - where the fall in gas prices has been the most dramatic - gas demand growth has weakened considerably.

"The absence of a direct link between demand and prices suggests that other factors have offset the impact of cheap gas."

The IEA said it had warned in the Medium Term Gas Market Report of 2015, that it was difficult for gas to compete in a world of very cheap coal, falling costs and continued policy support of renewables.

"While low fossil fuel prices raise the risk of weakening policy support for renewables, there is little evidence that this is occurring thus far. As coal remains cheaper to dispatch, and renewable deployment is little affected by the drop in fossil fuel prices, gas demand has remained weak."

The IEA said that in the US, the extension of federal incentives for solar and wind in 2015 would ensure their continued strong deployment over the remainder of the decade.

"In a development that echoes the European experience, US thermal generation is expected to decline over the forecast period as a large increase in generation from low-carbon sources outpaces modest growth in total generation. Total US electricity generation is forecast to increase by around 150 terawatt-hours between 2015 and 2021, half that recorded over the six-year period leading up to the financial crisis in 2008.

"With gas prices unlikely to fall much further from the very low level of 2015 - and thus largely exhausting coal-to-gas switching potential - increases in gas-fired generation from 2015 levels will be limited to the need to replace some of the coal capacity that retires. As a result, the IEA expects US gas-fired generation to stagnate, with risks skewed to the downside. China's gas demand likely to recover, India's demand resumes growth In 2015, Chinese demand growth decelerated sharply to a rate estimated around 4%."

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