Global natural gas demand is set to fall slightly this year due to higher prices and market disruptions caused by Russia's war on Ukraine, according to the International Energy Agency's (IEA) latest quarterly update.
The report revised global natural gas consumption growth for 2022 from the previous 1% forecast to slightly below zero, corresponding to a negative gas demand revision of 50 billion cubic meters compared to the previous quarterly report’s outlook.
The expected contraction in the world's gas demand is equivalent to about half of last year's US liquefied natural gas exports.
Global natural gas consumption grew by 4.5% last year despite increasing natural gas prices, especially in the second half of the year.
However, the war in Ukraine has added further pressure and uncertainty to an already tight natural gas market, especially in Europe, according to the IEA.
'While there are no legal restrictions on importing Russian natural gas to the European Union at this point, the war has pushed EU governments to seek to reduce their dependence on Russian fossil fuel imports as quickly as possible,' the IEA said.
Spot gas prices have soared to record highs as Europe’s push for more diversified natural gas supply has intensified demand for liquefied natural gas (LNG) cargoes, with some being diverted away from Asia.
According to the report, average spot LNG prices in Asia during the 2021-22 heating season were more than four times their five-year average. In Europe, spot LNG prices were five times their five-year average, in spite of a mild winter.
'The prices were also boosted by Russia's moves, even before war, to drastically reduce short-term gas sales to Europe, which had left European storage levels 17% below their five-year average at the start of the European heating season,' the IEA said in the report.
'Russia's unprovoked attack on Ukraine is above all a humanitarian disaster, but it has also triggered a major energy supply and security crisis,' said Keisuke Sadamori, the IEA director of Energy Markets and Security was quoted as saying in the report.
Sadamori said that while stiffer competition for LNG supplies is inevitable as Europe reduces its reliance on Russian gas, the best and most lasting solution to today's energy challenges would be to accelerate energy efficiency improvements across economies and accelerate the transition away from fossil fuels towards low-carbon sources of energy, including domestically produced low-carbon gases.
Russia is Europe’s largest natural gas supplier, meeting 33% of the region’s demand in 2021, up from 25% in 2009.
The flow of natural gas transiting through Ukraine has continued so far since the start of the war, despite Ukraine itself experiencing supply disruptions and damage to its gas infrastructure, the IEA said.
According to the report, natural gas consumption this year is expected to fall by close to 6% in Europe while in Asia it is expected to grow by 3% in 2022, a marked slowdown from growth of 7% in 2021.
Regions such as the Americas, Africa and the Middle East are expected to be affected less directly by gas market volatility, as they principally rely on domestic gas production.
'But they are nonetheless being affected by the wider economic impacts of Russia’s invasion of Ukraine including rising commodity prices, weaker purchasing power and lower investment due to dented business confidence,' the IEA said.
By Nuran Erkul Kaya