Natural Gas Markets to Remain Tight in 2023 as Russia Cuts Supply, IEA Says

A gas storage station near Strasswalchen, Austria. Europe’s gas consumption declined by more than 10% in the first eight months of this year. AFP

Natural gas markets are expected to remain tight in 2023 as Russia, one of the world’s largest exporters, further reduces supplies to Europe.

Russia’s continued curtailment of natural gas flows to Europe has pushed global prices to “painful” highs, disrupted trade and led to acute fuel shortages in some emerging economies, the Paris-based agency said on Monday in its latest market report.

This market tightness will continue well into next year, it said.

European natural gas prices and Asian spot liquefied natural gas (LNG) prices hit record highs in the third quarter of 2022.

This reduced gas demand and spurred a switch to other fuels required for power generation, such as coal and oil.

Europe’s gas consumption declined by more than 10 per cent in the first eight months of this year, compared with the same period in 2021, driven by a 15 per cent drop in the industrial sector as factories curtailed production, the agency said.

Russia’s military offensive in Ukraine and supply reductions are causing “significant” harm to consumers, businesses and entire economies, said Keisuke Sadamori, IEA director of energy markets and security.

Gas prices have surged more than sevenfold this year, tipping the European economy towards a recession and exacerbating inflationary pressures.

“The outlook for gas markets remains clouded,” Mr Sadamori said.

Global gas consumption is expected to decline by 0.8 per cent in 2022 as result of a record 10 per cent contraction in Europe and unchanged demand in the Asia-Pacific region, the agency said.

The EU, which is boosting its LNG imports to offset the loss of Russian supplies, is facing the possibility that Russia may completely stop gas deliveries in retaliation for sanctions.

If Russian supply comes to a halt and LNG inflows are low, the bloc would need to reduce its winter gas demand by 9 per cent from the previous five-year average level to maintain gas storage levels above 25 per cent, the agency said.

To sustain storage levels above 33 per cent, demand needs to be reduced by 13 per cent, it said.

The IEA expects Europe’s LNG imports to increase by more than 60 billion cubic metres this year, or more than double the amount of global LNG export capacity additions.

The current crisis also casts long-term uncertainty on natural gas prospects, especially in developing markets where it was replacing other high-emission fossil fuels, the agency said.

Natural gas demand in China and Japan, the world's biggest importers of LNG, was almost unchanged in the first eight months of 2022, compared with the same period a year earlier, while it contracted in India and Korea, the IEA said.

Demand in China is expected to rise by less than 2 per cent in 2022, its lowest yearly growth rate since the early 1990s, the report said.

Demand in North America grew, despite natural gas prices soaring to 14-year highs during the summer, the agency said.