The global natural gas market faces a glut over the next several years, according to the wealthy consuming countries’ main energy watchdog.
A large amount of new liquefied supply will be coming on stream – particularly from Australia and the US – at a time when demand growth is expected to slow sharply over the next five years, the Paris-based International Energy Agency (IEA) forecast in its medium-term outlook for the world gas market.
Even in the Middle East, which has been one of the stronger-growing regions for gas demand, the pace of growth will slow over this period, the IEA said.
The IEA forecasts that smaller regional markets, including the UAE, will still require additional liquefied natural gas (LNG) capability to meet demand.
In the UAE there has been power demand growth of about 6 per cent a year over the previous decade, with about 90 per cent of that met by natural gas. Despite sitting on the world’s sixth-largest gas reserves, the UAE has had to import gas since 2008 to meet its growing needs. There is an existing LNG intake facility in Dubai, which can process about 3 million tonnes a year.
Emirates LNG, a joint venture between two Abu Dhabi government-related enterprises, Ipic and Mubadala, has plans on the drawing board for a 9 million tonnes a year plant in Fujairah, which is still awaiting an investment decision.
The forecast glut should be good for those with gas import needs, although it also makes it less likely that high-cost gas development projects, such as the UAE’s Bab sour gas field, which Royal Dutch Shell pulled out of last year, will be economic if prices are depressed.
The Middle East is expected to increase supply by 1.6 per cent on average, mainly from Saudi Arabia, which is targeting a doubling of domestic gas output, and Iran. But “the regional producers struggle to deliver growth”, thus requiring higher imports, the IEA said, because of “low investments, unattractive price terms and persistent security challenges”.
The IEA forecasts global demand for gas (both domestic pipelined gas and LNG) to grow at an average of 1.5 per cent a year, reaching 3.9 trillion cubic metres in 2021, an incremental rate of 340 billion cubic metres (bcm) a year between last year and 2021.
China had been a big engine of demand growth for gas, with growth averaging 15 per cent a year until last year, when it decelerated sharply to 4 per cent, mainly because of the fact that gas prices did not fall quickly enough to deter industrial users from switching to much cheaper oil. The IEA expects Chinese demand to pick up, but only to an average annual growth rate of 9 per cent through to 2021, a much slower pace than before.
Still, some big and expensive LNG projects are due to come on stream.
“We see massive quantities of LNG exports coming online while, despite lower gas prices, demand continues to soften in traditional markets,” said Fatih Birol, head of the IEA.
The main source of the new LNG supply will be Australia, which will account for almost all the new production in Asia, which the IEA expects will almost double between last year and 2021, from close to 80 bcm last year to an estimated 153 bcm in 2021.
The other source of global supply increase in this period will be the US, where gas production will increase at an average of 2.2 per cent over the five years – a third of the world’s total increase.
The US, therefore, is expected to become a gas exporter during the period.
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