IEA slashes gas growth forecast after record prices

The government is also examining the mechanism’s effectiveness in ensuring households and businesses have access to affordable gas, amid complaints from struggling manufacturers that it has no teeth. In the meantime, high prices are likely to erode domestic gas demand from some users, reflecting the IEA’s comments on the broader global situation.

Peak price

Wholesale gas prices in Victoria remain capped at $40 a gigajoule after a series of extreme prices pushed the seven-day price total above a level set on May 30. On Tuesday, prices in the Sydney, Adelaide and Brisbane markets were all in the range of $39.60 to $44.80/GJ – around four times higher than the $10/GJ that some manufacturers consider their limit.

LNG prices in Asia are almost three times higher than they were a year ago, trading at US$38.75 per million British thermal units on Tuesday, down from US$13.41/ MMBTU.

The high prices have contributed to the reduction in the IEA’s forecast for global gas demand growth, which it says will increase by 140 billion cubic meters (bcm) between 2021 and 2025, including a slight contraction this year.

The revised forecast is less than half of the 370 bcm growth seen over the past five years, and well below the exceptional jump in demand of nearly 175 bcm in 2021 alone.

The drastically changed forecast raises questions about the strength of future demand for LNG, of which Australia is one of the world’s biggest exporters. The IEA warns that the Asia-Pacific region, Australia’s main LNG export market, remains a major growth engine, accounting for around half of the expected increase, but warns of ‘downside risks’ linked to high prices and potentially weaker economic growth. .

Several Australian LNG producers, such as Woodside Petroleum and Santos, are investing billions of dollars in new export projects, including the Scarborough project in Western Australia and Barossa off the north coast, which aim to meet demand customers in Asia.

Growth forecasts

The IEA still expects growth in global LNG trade to significantly outpace growth in global gas demand, but its forecast for annual growth of just under 4% through 2025 is well below current figures. 7% recorded in the previous five years. Growth in total gas demand is now expected to increase by 0.8% per year.

“Russia’s unprovoked war in Ukraine is seriously disrupting gas markets that were already showing signs of tightness,” IEA Director of Energy Markets and Security Keisuke Sadamori said.

“We are now seeing inevitable price spikes as countries around the world compete for LNG shipments, but the most enduring response to the current global energy crisis is to step up efforts and policies to use the energy more efficiently and accelerate clean energy transitions”.

Demand in Asia-Pacific is expected to grow by 2.6% per year on average over the period 2021-25, well below the annual growth of 4.3% over the period 2017-21. China accounts for 75% of regional growth, but the IEA says the market will “shift down a gear” over the next few years.

India’s demand growth outlook is “declining but not exhausted”, according to the IEA, while major markets in Japan and South Korea face a decline through 2025. By contrast, markets emerging Asian countries such as Thailand, Vietnam and the Philippines will have “relatively robust” growth of 9% over this period, but this forecast has still been cut in half.

The IEA describes the current market, where Europe is desperate to phase out Russian imports, as “exceptionally tight”. A slowdown in new LNG supply additions increases the risk of an extended period, he said, given that most new supply will not come online until after 2025.

His assumptions show gas prices peaking this year and then easing through 2025, with Asian LNG spot prices falling to below US$15/MMBTU on average by then.

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