Global gas demand to remain resilient in the short term: Wood Mackenzie

A severe shortage of natural gas, declining wind power output, nuclear outages, and cold weather have conspired to hand Europe one of its worst energy crises on record. Yet, Europe’s energy woes keep getting worse at every turn.

European natural gas prices hit a new record high last week after a pipeline bringing Russian gas to Germany switched flows to the east while  U.S. ships carrying liquefied natural gas (LNG) destined for the European market are diverting to Asia, where prices are even higher.

Woodmac says that at current levels of Russian exports and considering normal weather conditions, European storage inventories will fall below 15 billion cubic meters (bcm) by the end of March, a record low. Prices will eventually come down as the winter is through, but requirements to refill storage facilities will be high, some 20-25 bcm more than last year.

A report by Wood Mackenzie says natural gas demand is likely to remain resilient in the short term, with signs of demand destruction limited so far. 

LNG demand in Asia has continued to increase as most supply is priced at legacy oil-indexed contracts, currently trading at half the value of Asian LNG spot prices. The prospects are less bright in the European market with gas demand in industry and power down 4% since the summer, compared to the past five years.

But Woodmac vice president Massimo Di Odoardo says that eventually, higher prices will put pressure on demand. For instance, in Asia, the rationale to switch from coal to gas will diminish, as higher spot LNG prices will translate into higher oil-indexed contract prices. Meanwhile, investment in renewables and batteries is likely to continue increasing, limiting the headroom for gas demand to grow. Policymakers in Europe will look to accelerate the shift away from natural gas, as the recent EU proposal to support biomethane and hydrogen suggests.

Leave a Reply

Your email address will not be published.