Global gas demand to decline by 0.3% in 2022 amid high prices, volatility: IEA

Global gas demand is set to turn negative in 2022 as a result of high prices and market uncertainty, with demand expected to fall by 0.3% this year, the International Energy Agency said April 20.

In its latest quarterly market report, the IEA said global gas demand in 2022 was forecast at 4.086 Tcm compared with 4.097 Tcm last year, and was a downward revision of a previous forecast for global gas demand growth of 1% this year.

"Tight supply, high prices, and heightened market uncertainty have led to a downward revision in global gas consumption growth, which as a result is expected to turn negative for 2022," the agency said.

"The outlook remains highly uncertain, and further downsides can be expected, especially in emerging gas importing markets, as a result of lasting supply tensions, high prices and volatility." it said.

The IEA said Russia's invasion of Ukraine on Feb. 24 had triggered a major energy supply and security crisis that sent commodity prices to new highs, with wider implications for the global economy.

"The conflict has put further considerable pressure on gas markets and raised uncertainty in the context of an already tight market," it said.

"Europe has been at the epicenter of market tensions since the beginning of the heating season, resulting from the combination of lower than average underground storage inventory -– principally from sites partly owned or controlled by Gazprom –- and a sharp year-on-year drop in Russian pipeline supplies," it said.

Low stock levels across Europe and the need to refill them over the coming summer have contributed to record high gas prices.

Day-ahead gas on the benchmark Dutch TTF hub was priced at Eur212/MWh ($232/MWh) on March 7, an all-time high and 230% higher than the start of 2022, according to Platts price assessments by S&P Global Commodity Insights.

European storage sites were filled to 77% of capacity last summer, and storage facilities were still only 29% full as of April 18, according to data from Gas Infrastructure Europe.

Premium LNG market

The IEA said that lower Russian supplies had largely been compensated for by LNG, "turning Europe into the premium market and drawing cargoes away from Asia Pacific and other regions."

The high European short-term prices since the beginning of the conflict saw significant LNG cargo deliveries to Europe, which were key to balancing winter consumption, it said.

"The competition for flexible LNG cargoes pushed Asian spot prices to a record high and led to further curtailment in price-sensitive importing markets, particularly in emerging Asia."

In Europe, the push to reduce dependency on Russian gas is likely to see flows remain low.

"There are no legally binding import restrictions on Russian gas in the EU, yet there is a strong drive to reduce the bloc's exposure to Russian energy imports," the IEA said.

It added that the drop in Russian pipeline deliveries to Europe -- and absence of spot traded volumes since October -- combined with the EU's objective of reducing its supply dependency on Russia had led it to revise down its assumption for Russian pipeline deliveries to Europe for 2022.

"This in turn necessitates higher LNG imports in order to balance consumption needs and ensure the filling of European underground storage sites," it said.

"Higher LNG import needs in Europe are putting pressure on an already tight global LNG market balance in 2022."

Additional supply

The agency said the prospect of additional supply appears limited as incremental export capacity relies on a limited number of projects, while several exporters are still hampered by 2021's extended capacity outages.

"The resulting supply tensions and high short-term prices are likely to have a negative impact on gas consumption in price-sensitive emerging markets, which will also be affected by the rising cost of their oil-indexed long-term LNG supply contracts," it said.

Gas demand is also likely to be affected by the conflict's wider repercussions on the global economy.

"The current gas supply tensions and high prices also have strong negative impact on the non-energy uses of gas, especially for fertilizers," the agency said.

The IEA said gas demand forecasts for almost all regions had been revised downwards, with a large share of the impact in the Asia Pacific region, on a combination of a downgraded economic outlook from high commodity prices and the risk of physical limitations on access to LNG.

Gas consumption in Europe and Eurasia, which was already expected to decline in 2022 after strong contributions from weather-related demand in 2021, has been further revised downwards.

"Consumption in these regions during 2022 is anticipated to fall by close to 6% and 5% year-on-year, respectively," it said.

Other regions are so far expected to be less directly affected by international gas trade tensions as they principally rely on domestic production.

"They would nonetheless be affected by the indirect macroeconomic consequences of the conflict on their domestic economies and gas markets."