Russia’s continued cuts to natural gas flows to Europe have pushed international prices to alarming new highs, disrupted trade flows and caused acute fuel shortages in some emerging and developing economies , and the tight market is expected to continue well into 2023, according to the latest program from the IEA. Quarterly report on the Gas Market.

Natural gas markets around the world are tightening from 2021, with global gas consumption expected to decline by 0.8% in 2022 as a result of a 10% contraction in Europe and flat demand in the Asia Pacific region. Global gas consumption is forecast to grow by just 0.4% next year, but the outlook is subject to a high degree of uncertainty, particularly in terms of Russia’s future actions and the economic impacts of persistent energy prices.

Russia has largely cut gas supplies to Europe in defiance of sanctions imposed on it after invading Ukraine. This has added to market tension and uncertainty ahead of the coming winter, not only for Europe but also for all markets that rely on the same supply pool of liquefied natural gas (LNG).

“Russia’s invasion of Ukraine and sharp reductions in natural gas supplies to Europe are causing significant harm to consumers, businesses and entire economies – not only in Europe but also in emerging and developing economies developing,” said Keisuke Sadamori, IEA Director of Energy Markets and Security. “The outlook for gas markets remains cloudy, especially due to the reckless and unpredictable behavior of Russia, whose reputation as a reliable supplier has been shattered. But all the signs are that the markets will remain very tight well into 2023.”

The current gas crisis also creates longer-term uncertainty about the prospects for natural gas, particularly in developing markets where its use was expected to increase in at least the medium term as it replaced other fossil fuels. which have higher emissions.

European natural gas prices and Asian LNG spot prices hit record highs in the third quarter of 2022. This reduced demand for gas and prompted a shift to alternative fuels such as coal and oil for power generation. In some emerging and developing economies, the price increases have triggered shortages and power cuts. European gas consumption fell by more than 10% in the first eight months of this year compared to the same period in 2021, driven by a 15% drop in the industrial sector as factories curbed production.

Demand for natural gas in China and Japan was unchanged over the same period, while demand in India and Korea declined. China’s gas demand is forecast to grow by less than 2% this year, the lowest annual growth rate since the early 1990s. Meanwhile, natural gas prices in the United States hit their highest summer levels since 2008, but North America was one of the few regions in the world where demand increased, supported by demand from power generation.

Europe has offset the sharp drop in Russian gas supplies through LNG imports, as well as alternative pipeline supplies from Norway and elsewhere. Rising European demand for LNG – up 65% in the first eight months of 2022 from a year earlier – has pulled supply away from traditional buyers in the Asia-Pacific region, where demand fell by 7% in the same period as a result of high demand. prices, mild weather and ongoing Covid lockdown in China.

The IEA forecasts that European LNG imports will increase by more than 60 billion cubic meters (bcm) this year, or more than double the amount of global LNG export capacity additions, keeping international LNG trade under strong pressure in the short term and in the medium term. This suggests that Asian LNG imports will remain lower than last year for the rest of 2022. However, China’s LNG imports could increase next year under a series of new contracts concluded from early 2021, and there would also be a colder than average winter. as a result of additional demand from north-east Asia, further adding to the tightness of the market.

In addition to diversifying supply, the European Union and its member states have taken other measures to increase gas security, such as setting minimum storage obligations and implementing energy saving measures for the coming winter. EU storage facilities were almost 90% full at the end of September, although Russia’s lack of supply poses challenges to refilling them next year. Both Japan and Korea have initiated policies to reduce reliance on imported LNG for power generation and have developed contingency plans for disruptions in LNG supply.

For the new report, the IEA carried out a resilience analysis of the EU gas market in the event of a complete shutdown of Russian supply starting from 1 November 2022. That analysis shows that without demand reductions in place and if Russian pipeline supply is completely cut , EU gas storage would be less than 20% full in February, assuming a high level of LNG supply – and close to 5% full, assuming a low LNG supply. Storage falling to these levels would increase the risk of supply disruption in the event of a late cold spell. A 9% reduction in EU gas demand during the winter period from the average level of the last five years would be required to maintain gas storage levels above 25% in the case of lower LNG flows. And a 13% reduction in demand from the 5-year average during the winter period would be required to maintain storage levels above 33% in the case of low LNG inflows. Therefore, gas saving measures will be essential to minimize storage withdrawals and to maintain inventories at adequate levels until the end of the heating season.

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