The IEA revises global gas demand radically downwards until 2025

Published
07/05/2022 08:57

Updated
07/05/2022 08:57

The International Energy Agency (IEA) he has radically downwards its forecasts for global gas demand until 2025 because of record prices since the beginning of the Russian invasion of Ukraine and which are set to continue at exceptionally high levels.

In its quarterly gas report published this Tuesday, the IEA calculates that demand will even drop by 0.5% this year and from 2023 it will start to recover to reach a growth rate of 1.5% in 2025.

That means for the period 2021-2024 the average increase in demand will be 0.6%, when last year an annual rise of 1.7% had been anticipated.

To get an idea, between 2021 and 2025 the increase in consumption will be about 140,000 million cubic metersup to about 4.24 trillion, when in the previous five years that increase had been 370,000 million cubic meters.

The main element that explains this severe correction is the war in Ukraine, which has led the European Union to decide to rdrastically reduce its gas imports from Russiatraditionally its main supplier.

To replace these Russian imports, Europe is trying to turn to other producing countries, and that means above all the liquefied natural gas (LNG) that arrives by ship, a market that has entered into a tension that will not be resolved in the short or medium term.

Gas prices will remain very high

The direct consequence is price escalation. According to IEA assumptions, gas prices in the dutch TFF marketwhich serves as a reference in Europe, not only are they going to increase sixfold this year than there were in 2019, before the start of the coronavirus crisis, but in 2025 they will continue to be practically triple.

The authors of the report have drawn up a baseline scenario in which the EU will decrease its purchases of Russian gas by gas pipeline by around 55% between 2021 and 2025.

But also they contemplate another alternative in which this cut could reach 75% because of the great uncertainties that exist, in particular given the possibility that Moscow will close the taps even more, as it has already done in recent months with several countries, including Germany.

It is not surprising that the increase in the global supply of LNG this year will be insufficient to meet all the demand from Europe.

In that context, it is not surprising that the increase in the global supply of LNG this year will be insufficient to meet all the demand from Europewhich will absorb more than 60% of the increases that occur in the following three years.

Because the paradox is that supply expansion is going to slow downsince the low prices of gas and oil in the middle of the last decade caused a reduction in investments in new capacities, and this will take time to reverse.

Limited offer due to lack of investment

In that way, the volume of LNG will grow at an annual rate of slightly less than 4% in the 2021-2025 period, well below the 7% to which it was progressing in the previous five years.

At the same time, sales by gas pipeline are going to be reduced globally at a rate of 1.9% due to the drop in flows from Russia to Europe.

An illustration of these movements is what has happened in June, which has been the first month in which iEuropean imports of LNG from the United Stateswith almost 5,000 million cubic meters, have exceeded purchases of Russian gas, which at the beginning of 2021 still used to average more than 12,000 million per month.

The European gas demand this year should decrease by 9% and the trend will remain downward for the entire forecast period of the report, so that in 2025 it will remain at 536,000 million cubic meters, clearly below the 586,000 million in 2019, not to mention the 604,000 million in the historical peak of 2021.

According to IEA projections, only one fifth of the downward revision of global gas demand expectations until the middle of this decade it will be the result of improvements in energy efficiency or the substitution of gas for renewable sources.

That is why its director for markets and market security, Keisuke Sadamori, considers that in this crisis situation, “greater efforts and policies are needed for a more efficient use of energy and accelerate the transition to clean energy”.