The world economy’s failure to recover sufficiently is frustrating energy exporters’ efforts to rebalance the market without sharp price declines, says the International Energy Agency (IEA).
In its latest report on the medium-term outlook of the global gas market, the Paris-based energy watchdog lowered its forecast of demand growth over the next five years to 2 per cent a year on average, from 2.3 per cent in its previous forecast last year.
The IEA cites several reasons for its forecast of slower growth through 2020, including the advance of renewable energy technologies, which have become cheap enough to entice countries to switch from using coal and nuclear power.
But the fact that oil and gas have become so expensive in recent years, even amid sluggish economic growth, has accelerated the switch to clean-energy technologies.
“One of the key – and largely unexpected – developments of 2014 was weak Asian demand,” said Maria van der Hoeven, the IEA’s executive director.
“The experience of the past two years has opened the gas industry’s eyes to a harsh reality. In a world of very cheap coal and falling costs for renewables, it was difficult for gas to compete.”
The IEA report comes as Opec oil ministers meet in Vienna today to assess the world market after their decision last November to keep pumping at the same level, even though their oil exports exceeded global demand by about a million barrels a day.
The widely held view is that Opec – led by Saudi Arabia and its Arabian Gulf allies – will hold to its decision to keep producing at current levels and let higher-cost producers – such as shale oil producers in the United States – cut back output to balance the market.
“These countries [the Arabian Gulf members of Opec] are willing to tolerate low oil prices now in the hope that prices are higher in the long-run [as the global economy improves],” said Jason Tuvey, who analyses the Middle East at Capital Economics.
“[But] the big picture is that prices are still 40 per cent lower than a year ago, and several members of Opec, notably Venezuela and Iran, have continued to push strongly for cuts to the group’s production target.”
For the natural gas market, any recovery in Asian demand may be slowed by the fact that gas prices have been kept artificially high by oil prices, to which they are linked, according to the IEA.
“Demand for gas in Asia may not recover as quickly as the drop in prices,” said the IEA report.
“A few Asian countries have decided to move ahead with plans to expand coal-fired power generation instead of gas-fired generation. For the fuel to make sustained inroads in the energy mix, confidence in its long-term competitiveness must increase.”
As with the oil sector, the lower forecasts for gas prices mean that gas production projects are being cancelled or delayed.
Even so, the IEA notes that the global gas market – especially the markets in Asia and the Middle East – will have to cope with a flood of new supply from liquefied natural gas (LNG) projects coming on stream in the next three years, particularly in Australia.
International LNG export capacity is expected to rise by more than 40 per cent over that period, even though demand is lagging badly.
In Europe, about 80 per cent of LNG intake capacity has been idling for months.
For the UAE, which has become a net gas importer in recent years, it is unclear what the overall effect will be.
Although the gas glut may hit early-stage gas production projects, such as the Bab Gas Compression project, it should lower import prices and favour developments such as a planned LNG intake facility at Fujairah.
amcauley@thenational.ae
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