Weaker than expected demand in Asia prompts agency to lower future growth expectations

The International Energy Agency (IEA) revised down its expectations for natural gas global demand growth to 2% from 2.3% a year ago in it its latest Medium-Term Gas Market Report. One of the main drivers behind the revision was lower than expected gas demand in Asia, said the report.

“One of the key – and largely unexpected – developments of 2014 was weak Asian demand,” said IEA Executive Director Maria van der Hoeven. “The experience of the past two years has opened the gas industry’s eyes to a harsh reality: in a world of very cheap coal and falling costs for renewables, it is difficult for gas to compete.”

Since gas prices to Asian markets are indexed to oil prices, the IEA expects that demand will pick up as gas prices remain low. This may not be enough to maintain a competitive edge against other fuel sources. The report found that low prices will benefit gas in the short-term, but the long-term outlook is uncertain, with many Asian countries increasing coal use. “For the fuel to make sustained inroads in the energy mix, confidence in its long-term competitiveness must increase,” the IEA said.

In Industrial Information Research’s (IIR) 2015 Global Power Industry Outlook, IIR said that there is currently $1.36 trillion in active spending in energy projects in East Asia, 86% ($1.17 trillion) of which is focused in China. According to the IIR data, much of that money is going towards new coal development, with some renewable energy buildout as well.

LNG expected to grow 40% in the next five years

Natural gas

Source: Gazprom

While the lion’s share of spending in East Asia is in China, some of the remaining spending is helping Japan to focus on repowering old oil-fired power plants with natural gas, according to IIR. Liquefied natural gas (LNG) is expected to be a major source of power for Japan moving forward.

The IEA projects global LNG export capacity to increase by more than 40% by 2020, with 90% of the additions coming from Australia and the United States. The report says that projects already underway will see little impact from low oil prices, but that projects being considered but not already being developed will be easy targets for companies looking to cut costs.

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