Cedigaz: Gas market imbalance to last in the short, medium terms

Worldwide natural gas consumption in 2015 was characterized by moderate growth, up 1.6% to 3,472 billion cu m, after having stagnated in 2014, according to first estimates of Cedigaz, the international association for natural gas.

But, warns Cedigaz, the higher growth is essentially the result of a weather-driven recovery in the European Union where demand rebounded 4.5% after falling 11% in 2014. For the rest of the world, gas demand growth was actually lower than in 2014-1.2% vs. 2%-and was pulled by a limited number of countries.

"The inability of natural gas demand to keep pace with an accelerated supply growth lead to an imbalance in the global gas market and to a price weakness which is expected to continue in the short and medium term, amid a sluggish economic environment," Cedigaz said.

According to Cedigaz, gas market developments in 2015 were impacted by many events that included the decline in prices for all fossil fuels, the slowdown of China's economic growth, the renewal of nuclear energy in Asia together with a booming expansion of renewable energy capacity, the fast decline of Chinese energy intensity, the curtail of Groningen gas field production, the decline in Asian gas premium, and China's gas-pricing reform.

Demand growth remained concentrated in a small number of countries with the North American market, under the impetus of the US, and the Middle East providing the largest contribution, followed by Europe. In the US, record low gas prices alongside environmental policy initiatives are encouraging coal-to-gas switching. Strong growth also was recorded in the Middle East, under the impulsion of Iran and the UAE. In Europe, the recovery of gas demand in 2015 was essentially due to the return to normal weather conditions in the first months of the year, following a mild winter in 2014.

Conversely, gas consumption growth came to a halt in Asia with strong declines recorded in Japan and South Korea and a marked slowdown in China. Strong decline was also recorded in the Commonwealth of Independent States (CIS), especially Russia, where gross domestic product contracted by 3.7% in 2015.

In spite of depressed gas prices, production grew strongly again by 4.1% in North America, where gas supply continues to be boosted by unconventional gas. Production also increased significantly in Asia-Oceania, up 3.3%, and the Middle East, up 3%. Reversely, it stagnated in Latin America and dwindled in Europe, down 2.7%, the CIS, down 0.6%, and Africa, down 2%.

After falling 4.4% in 2014, international gas pipeline trade resumed growth in 2015, up 2.9%, according to Cedigaz. The growth was mainly due to a rebound in Russian gas exports to Europe, where surging consumption combined with falling indigenous production resulted in a growing dependence on extraregional imports.

Overall, regional gas prices tended to converge except for North American prices which remained significantly lower than in the rest of the world.