An oversupply in global gas markets is here to stay until the end of the decade, as the LNG glut is unlikely to be soaked up by utility buyers. IEA Executive Director Fatih Birol explained that cheaper coal and continued strong renewables growth were blocking gas from expanding more rapidly in the power sector.
Global gas demand is seen rising by 1.5% per year from 2015 until 2021, less than the 2% projected in last year's outlook. In its 2016 Medium-Term Gas Market Report, the IEA says the slowdown is driven by sluggish gas demand in Japan, Korea and in the US, were natural gas struggles to compete as a fuel used for power generation in competition with renewables and “cheaper coal, particularly in Asia.”
The supply glut is anticipated to persist at least until 2018 and the supply/demand balance is unlikely to align until 2021 as LNG supply is set to surge by over 45% before the end of the decade, while demand is likely to stay subdued. In particular, the outlook for Japan and Korea - the world's top two LNG buyers – remains “weak.”
“These contradictory trends will both impact trade and keep spot gas prices under pressure," Dr Birol forecast with reference to as LNG sellers into the Pacific Basin seeking to court buyers in China, India and ASEAN. Trade on global gas markets will consequently undergo a major reshape over next five years.
Consumption in Europe is anticipated to rise 0.3% annually, reversing years of decline, amid greater use of gas in the power sector. The region is widely seen as a ‘market of last resort’ for LNG, though sellers need to factor in competition from Russian pipeline supplies.
Globally, demand for all fossil fuels is falling mainly thanks to a decline in the energy intensity of the major economies. 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.