Gas growth to slow on weak demand, rise of alternatives

Gas demand returned to growth in 2015, yet the pace of the rise is expected to be very slow in coming years, concluded the International Energy Agency’s Medium-Term Gas Market Report 2016, launched on 8 June at a Friends of Europe conference in Brussels. Global demand will increase at an average annual rate of 1.5% between 2015 and 2021, compared with the 10-year average of 2.2%, the IEA said. Because of the reduced expectations, new investments have been slowing: in the first half of 2016, no new export projects were sanctioned.

One reason is slow world economic growth combined with a decline in the global economy’s energy intensity – particularly noticeable in China. At the same time, gas is facing an even greater competition in the power sector. “You cannot look at gas in isolation from what happens with other fuels,” said Fatih Birol, Executive Director of the IEA. “Coal prices are rock bottom, especially in Asia. If you don’t have regulations on air pollution, coal may be the preferred option. And the falling cost of renewables and government support for these squeezes the room for gas.”

However, gas has a role to play in the world’s efforts to reduce carbon dioxide emissions, driven by the 2015 Paris Agreement. Coal emits proportionally more carbon dioxide than gas; and while renewables are often talked about as the ideal solution, they are thought unlikely to expand fast enough to replace coal. “Gas can play an important role if it replaces coal,” said Birol. “But gas alone will not bring us to the two-degree target.”

The IEA report provided additional input for the European Commission as it aims to secure reliable supply as part of the Energy Union strategy. “The gas market will remain mobile, as it is changing fast,” said Dominique Ristori, European Commission Director General for Energy. “This is a message regarding the need to maintain energy security for gas as a priority. That is why we proposed a new energy security package in mid-February.”

Read our report on ‘Gas demand slumps despite role in cutting emissions’ below. If it fails to load, or if you would prefer to read it offline, then you can also download a PDF version of the report.

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