International gas markets remain tight amid uncertainty over China and Russia

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IEA: International gas markets remain tight due to China and Russia uncertainty

International natural gas markets remain tight due to China’s demand for liquefied natural gas (LNG) and uncertainties about further disruptions in gas flows from Russia

The International Energy Agency’s (IEA) Gas Market 2023 – 1st Quarter Report, which includes developments in the natural gas market in 2022 and forecasts for 2023, has been published. According to the report, despite a 1.6 percent decline in global natural gas consumption last year, supply tightness in the market continued.

In Europe, at the center of the energy crisis, natural gas demand fell by 13 percent in 2022, the fastest decline in history. The decline was driven by the emergency measures taken by governments against the energy crisis, the contraction in industrial production, consumers cutting their consumption and mild weather conditions.

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North America’s natural gas consumption rose by 4.4 percent, driven by the increase in gas consumption in the US and the rise in gas power plants and industrial consumption in Canada.

Asia’s natural gas demand declined by 2 percent due to COVID-19 restrictions in China and mild weather conditions. While China’s natural gas demand decreased by 1 percent in 2022, Japan maintained its title as the world’s largest LNG importer despite a 3 percent contraction in LNG imports.

Last year, LNG trade hit an all-time high due to high prices, doubling year-on-year to $450 billion. Europe has been the driving force behind the growth in global LNG trade as it substitutes Russian gas with LNG. Europe’s gas imports grew by 63 percent in 2022.

Russian gas supplies to the European Union (EU) fell by more than half in 2022 compared to the previous year, by 78 billion cubic meters.

Prices may reach unsustainable levels this summer

Natural gas prices in Europe and LNG prices in Asia reached record highs last year. In Europe, the rise in prices was driven by falling gas supplies from Russia, which were covered by LNG imports.

According to the IEA, natural gas prices have fallen in recent months after hitting historic highs, but this could change, especially with an increase in China’s LNG demand.

While China’s LNG demand, the world’s largest importer of natural gas, is expected to rise by 10 percent this year as COVID-19 restrictions are lifted, there are still uncertainties around the forecast.

It is estimated that if prices continue to fall and overall economic activity increases, China’s LNG gas demand could increase by up to 35 percent.

The likely increase in China’s gas demand could lead to fierce competition in international markets, and this summer, natural gas prices could reach unsustainable levels. This poses a particular risk for European buyers.

“China, the great unknown of 2023”

On the other hand, although global gas demand is expected to remain flat this year, the tightness in gas markets is expected to continue due to uncertainties about gas flows from Russia and the economic effects of volatile prices.

Commenting on the report, Keisuke Sadamori, Director of Energy Markets and Security at the IEA, said that last year was an extraordinary period for global gas markets: “Prices are now returning to manageable levels, especially in Europe, where mild winter conditions and a drop in demand have been experienced. China is the great unknown of 2023. The return of global LNG demand to pre-COVID-19 levels will only intensify competition in international markets and inevitably raise prices.”

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