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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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IEA: High Gas Prices Could Crush Demand Growth

  • The global supply crisis in natural gas has pushed prices to record levels.
  • The IEA believes high prices could begin to impact natural gas demand.
  • In its third-quarter Gas Market Report, the IEA says it expects gas consumption to begin falling as early as this year.
Natural Gas Prices

Tight supply and energy security uncertainty have pushed natural gas prices to record highs, prompting a reversal of the expected strong increase in demand over the next five years, the International Energy Agency has reported.

In its third-quarter Gas Market Report, released today, the IEA said that it expected gas consumption to decline this year because of the price situation. Over the five years to 2025, the IEA sees gas consumption rising by a total of 140 billion cu m.

This is down from a total gas demand expansion of 370 billion cu m over the five years to 2020 and less than the demand spike seen in 2021, which stood at 175 billion cu m. Annually, the IEA expects global natural gas demand to grow by a modest 0.8 percent in the five-year period. Related: Oil Prices Rebound As Crude Supply Tightens

Among the factors leading to this situation, the IEA noted a tighter overall supply environment beginning in 2021, which was further aggravated by Russia’s invasion of Ukraine and the EU’s subsequent rush to secure alternative gas supplies in the form of LNG.

“Europe’s surging demand for LNG to replace Russian pipeline gas supply has led to an exceptionally tight global market,” the IEA noted in the report. “Record high European gas prices have turned the continent into a premium market for LNG, drawing deliveries from other regions, and resulting in supply tensions and demand destruction in several markets.”

The tensions and the demand destruction appear set to continue because LNG export capacity additions are being added much more slowly than demand for LNG is rising. What’s more, according to the IEA, LNG capacity additions are set to slow down further in the five years to 2025 because of the cancellation of projects in the mid-2010s due to low gas prices and the construction delays caused by Covid lockdowns in 2020 and 2021.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on July 05 2022 said:
    In a tight global gas market with supply shortages, demand destruction hardly works. Moreover, if the demand for gas declines, what would be the alternative? Certainly not renewables who could hardly replace gas shortages.

    Therefore, I expect both gas demand and prices to continue rising well into the future.

    Qatar will be adding 32 million tons (mt) to its annual LNG production capacity by 2023/24 and the United States will also be expected to add to capacity by 2025 whilst Russia’s Novateck is already adding more capacity from the Russian Arctic.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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