Natural gas demand in developed economies won’t return to 2008 levels until at least 2012, with liquefied natural gas (LNG) capacity growth and the North American shale “revolutions” threatening to temper demand longer, the International Energy Agency (IEA) said last Wednesday.
Impacted by the global recession, the global gas markets will be buffeted by too much supply through at least 2012, the IEA said in its Medium-Term Oil & Gas Markets 2010 report.
“The most daunting question faced by the gas industry is the duration of the gas glut,” said the report’s authors.
The IEA, an adviser to member world nations in the Organization of Economic Cooperation and Development (OECD), said gas supplies are “unlikely” to tighten in the Atlantic Basin and in Europe before 2015. Meanwhile, European gas output also is seen declining over that period.
Two big reasons are the supply side “revolutions” under way worldwide: North American gas shales and an increase in LNG capacity, said the agency. Worldwide LNG capacity is forecast to jump by half (50%) in 2013 from 2009.
Some U.S. gas shale plays also have become profitable at $2.50/MMBtu. An increasing gas rig count in the United States may “drive production further up in 2010,” said the agency.
“There is a strong belief among the U.S. gas industry that the most economic unconventional gas can reach lower prices than conventional gas plays; the question is how much unconventional gas can be produced at these low prices,” the report stated.
Exacerbating the gas glut, said the IEA, is improved productivity at unconventional gas fields, falling service costs and the delivery of gas sold at high futures prices in early 2008.
World gas demand fell an “unprecedented” 3% in 2009, the biggest drop since the 1970s, the report noted. As the global economy recovers, by 2013 global gas demand is forecast to rise to 1,578 billion cubic meters (Bcm).
Gas demand in the North American and the Pacific regions will recover first, with European gas demand trailing. A more “sluggish” rise in gas consumption is expected in Europe, with 2013 European gas demand returning to 2007 levels, which is still below demand in the first half of 2008, the agency noted.
The global LNG trade is seen increasing by 5.3% to 245 Bcm into next year, IEA noted.
Surplus gas output capacity in 2009 was estimated at 200 Bcm, which is more than twice the annual demand in the United Kingdom, Europe’s biggest gas market, the authors said. Producers in Canada, the former Soviet Union, Algeria and Nigeria also curtailed gas production last year.
“OECD gas demand will recover slowly, with an expected return to 2008 levels by about 2012 but with large regional variations,” said the authors.
By 2013 OECD gas demand is forecast to rise 2% above 2008 levels to 1.6 trillion cubic meters a year, according to the IEA. However, the forecasted rise in consumption will be paced by the global economic recovery. For example, China’s gas demand is growing at about 10% a year and may reach 150 Bcm/year by 2015, according to the IEA.
Growth in power generation demand also is key to the global gas market’s recovery, said the international agency. Electricity use fell 4% in the OECD in 2009, and electricity will be the “primary driver” for gas demand growth.
“The current low gas prices and improved prospects of global gas supply, plus the very strong business advantages of gas-fired power, continue to drive strong interest in investment in gas-fired power plants in the OECD region,” the report noted.
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