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IEA: natural gas markets remain tight but uncertainty persists

Natural gas markets worldwide continued to tighten last year despite global consumption declining by an estimated 1.6 per cent in 2022, reported the International Energy Agency (IEA) in its latest Gas Market report. Demand is forecast to remain flat in 2023, but the outlook is subject to a high level of uncertainty, particularly in terms of Russia’s future actions and the economic impacts of fluctuating energy prices.

The unprecedented price rise led to a 13 per cent reduction in Europe’s gas demand, with governments adopting emergency policies and consumers trying to save as much energy as possible. Surely, milder winter weather also helped reduce heating needs. At the same time, gas demand in Asia dropped by 2 per cent as a result of high liquefied natural gas (LNG) prices, Covid-related disruptions in China and consistently mild weather in Northeast Asia.

Indeed, the IEA found that LNG was a particularly dynamic area in 2022 as the value of global trade hit an all-time high, doubling to 450 billion US dollars. Traded volumes increased by 6 per cent, slightly slower than in 2021, once again highlighting the distortive impacts that sharp rises in energy prices have had on global economic activity. Europe was the primary driver behind the increase in LNG demand as it pivoted away from the Russian pipeline. LNG cargoes delivered to Europe increased by 63 per cent last year.

Natural gas prices, although still high by historical standards, have fallen in recent months. However, that could change in 2023 as demand for LNG picks up in Asia, particularly in China. In a bullish scenario, China’s renewed demand growth may be as high as 35 per cent if prices continue to fall and general economic activity recovers swiftly. This would spark fierce competition in international markets and could see prices return to the unsustainable levels seen last summer, representing a concern for European buyers in particular.

“Last year was extraordinary for global gas markets. Prices are returning to manageable levels, particularly in Europe, where a mild winter and demand destruction have helped to cool markets,” said Keisuke Sadamori, the IEA’s Director of Energy Markets and Security. “China is the great unknown in 2023. If global LNG demand returns to pre-crisis levels, that will only intensify competition on global markets and inevitably push prices up again.”

Despite the growth in global LNG demand in 2022, the 5.5 per cent increase in supply was relatively modest. Maintenance at large liquefaction ports and a longer-than-expected outage at Freeport in the United States, one of the largest LNG terminals in the world, contributed to this. Moreover, high market prices were not enough to stimulate significant investment in new terminals.

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