Yves here. OilPrice has missed a possible diesel shortage, so take this forecast with a pinch of salt. But having said that, they point to a series of factors that look set to lead to gas demand outstripping supply, without a temporary fix. Of course, a global recession could change that.
Higher gas prices can cause more inflation. And this is the kind of inflation the central banks cannot fight, short of killing the economy. Therefore high fuel prices may cause economic mismanagement.
By Irina Slav, an Oilprice.com writer with over ten years of experience writing in the oil and gas industry. Originally published at OilPrice
- Global demand for natural gas is rising faster than expected, as the International Energy Agency (IEA) warns of possible shortages due to insufficient investment in production.
- Europe’s growing reliance on LNG, driven by declining Russian gas supplies, could lead to more volatile global gas markets.
- Slow growth in LNG supply is due to rising construction costs, regulatory challenges, and environmental policies.
Demand for natural gas is expected to increase more than previously expected, the International Energy Agency recently reported. Demand will remain strong next year, the agency predicted, warning that this could lead to a supply-side crisis because it is not growing fast enough.
Just last year, the International Energy Agency predicted that the demand for oil and gas will increase before 2030. That forecast was made by the IEA saying there was no need for further investment in hydrocarbon production. Now, it seems that not enough money is being invested in new natural gas production, for one. So, a shortage is on the way.
In the past few years, there has been a lot of congestion in the LNG market. Everyone was rushing to build LNG plants, and supply increased faster than demand. In the past few years, however, many developed countries have favored liquefied petroleum gas as a cleaner alternative to coal—and a cheaper one, too. Of course, the prices have changed since the peak periods, especially in 2022, when many Asian LNG buyers are priced out of the market by wealthy Europe, which has already found itself cut off from the supply of many Russian pipelines.
Since then, Europe has cemented its position as a major exporter of LNG, currently preparing for the end of gas flows from Russia’s last remaining pipeline after Ukraine said it would not renew a transit agreement with Gazprom. This means Europe will need more LNG—but not enough new is coming. What this means is another price shock, and poor countries trying to reduce their dependence on coal again and again.
Why is new supply so slow, one might wonder now, given the positive outlook for gas demand. The IEA is the latest in a series of forecasts that expect demand for the commodity to grow—thanks to a shift away from coal, because of population growth, and, of course, because of artificial intelligence.
There seem to be several reasons for the slow increase in supply. One is physical, according to a recent Bloomberg report looking at imbalances in the natural gas market. LNG plants take time to build—and face rising construction costs and an increasing regulatory burden for the world’s largest producer and exporter of the fuel: the United States. To add insult to injury, another LNG project recently saw its approval revoked by a court on climate change-related grounds.
There is also the so-called new LNG capacity freeze, which may not match immediate demand but will work in the medium term as natural gas demand continues to grow, driven by Big Tech and its artificial intelligence boom. That was accepted by the Biden administration earlier this year, based on one study that said natural gas was worse for the atmosphere than coal. Although some have criticized the study for its many flaws, it was enough for the US federal government to strengthen future gas supply markets.
The European Union, despite its strong appetite for LNG, was not helping itself. The bloc recently passed a new law called the Methane Regulation that seeks to ensure that only low-emission LNG enters the EU. This will make it more expensive for suppliers to build their own production facilities, adding to the final cost of fuel. As a silver lining, regulation could free up uninsured LNG supplies for less affluent consumers, easing demand pressure on suppliers.
“The growth we are seeing in global gas demand this year and next shows a gradual recovery from the energy crisis that has hit the markets hard,” said IEA energy markets director Keisuke Sadamori in a statement released by the media on demand and supply. “But the balance between demand and supply trends is fragile, with a clear risk of future instability,” Sadamori said.
This is an interesting observation, given the IEA’s strong belief that demand for hydrocarbons is being offset by alternative energy sources such as wind and solar. It was that belief that prompted the agency to repeatedly predict peak oil prices in about four years and peak gas demand two years later. Now, it seems that gas demand is still very much tied to economic growth or lack thereof—and all that entails
Europe is struggling to register any growth, and access to affordable gas is key to the successful outcome of this struggle. Various international organizations concerned about the Earth’s climate want Asian countries with growing energy to use more natural gas than coal. For that, gas needs to be cheap, which won’t happen anytime soon. Another stumbling block in the path of change.
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