The next five years will bring a reshaping of the global gas trade, theInternational Energy Agency (IEA) said Wednesday in its 2016
Medium-Term Gas Market Report.
New liquefied natural gas (LNG) supplies are
coming online just as demand growth in some major markets weakens,
resulting in major shifts in global gas trade patterns. A weak outlook
for Japan and Korea – the world’s top two LNG buyers - means that new
supplies will need to find other markets. China,
India and ASEAN countries will emerge as key buyers.
"We see massive quantities of LNG exports coming on
line while, despite lower gas prices, demand continues to soften in
traditional markets,” said IEA Executive Director Fatih Birol. These
contradictory
trends will both impact trade and keep spot gas prices under pressure.”
Dr. Birol added that the combined factors of cheaper coal and continued
strong renewables growth were blocking gas from expanding more rapidly
in the power sector.
The annual IEA report, which gives a detailed
analysis and five-year projections of natural gas demand, supply and
trade developments, sees global demand rising by 1.5% per year by the
end of the forecast
period, compared with 2% projected in last year's outlook. Slower
primary energy demand growth and the decline in the energy intensity of
the world economy are lessening demand growth for all fossil fuels,
including gas. As demand growth for coal and oil also
weakens, the share of gas in the energy mix is still expected to
increase –albeit modestly– by 2021.
While gas demand is projected to remain weak, global
LNG exports will increase substantially. Between 2015 and 2021,
liquefaction capacity will increase by 45%, mostly from the United
States and Australia.
New projects in both countries have commenced ramping up production.
Several others are at an advanced stage of development. By 2021,
Australia will rival Qatar as the world’s largest LNG exporter and the
US will not be far behind.
Fundamental developments point to oversupply in the
market over the forecast horizon of this report which should keep spot
gas prices across the globe under pressure: "unwanted” LNG supplies will
look for
a home in Europe, due to the flexibility of its gas system and
well-developed spot markets. As a result, intense competition will
develop among producers to retain or gain access to European customers.
"We are at the start of a new chapter in European gas
markets” Dr. Birol said.
Ample LNG supplies will also affect markets outside
Europe. Weaker-than-expected demand in Asia is leaving several large LNG
buyers in the region over-contracted. This should help accelerate a
transition
towards more flexible contractual structures. Moreover, with oil
markets expected to rebalance before gas markets do, renewed pressure to
move towards hub pricing and reduce oil exposure in long-term contracts
will likely re-emerge before the end of the decade.
Dr. Birol warned that today’s oversupply could
foreshadow a number of supply-side challenges and security risks down
the road, noting that a growing level of LNG export capacity had gone
offline during the
past five years due to technical and security issues and that such
problems could get worse with low oil and gas prices. As producers slash
investments to refocus on cost reductions and budget savings, he said
that such efforts may be too late for global gas
markets to rebalance during this decade, but could sow the seeds for
tighter markets into the next decade.