IEA forecasts dip in European gas demand in 2022
The International Energy Agency (IEA) predicts a 4% decline in natural gas demand in Europe this year, as sustained high prices will make the fuel less competitive against coal, according to a report published on January 31.
Gas consumption in Europe rose by 5.5% to 552bn m3 of gas in 2021, more than making up for a 2.8% decline during the previous year as a result of coronavirus restrictions. But the IEA expects it to dip to 527bn m3 in 2022.
"Gas-fired power generation is expected to decline amid the strong expansion of renewables, while high gas prices continue to weigh on its competitiveness vis-a-vis coal-fired generation," the Paris-based agency said.
Distribution network demand is also expected to fall, assuming that weather conditions are average, compared with the unseasonably cold spring in 2021. Meanwhile demand in industry should continue its recovery, reaching near to its pre-pandemic level.
Global gas prices have soared in recent months amid a strong rebound in demand and constraints with supply. The price spike has been most pronounced in Europe, owing to pricing policies, a drop in indigenous supply and a steep fall in Russian deliveries. These high prices are likely to remain until the middle of the year, the IEA said, but they could then decline if more supply becomes available.
The IEA's head Fatih Birol has blamed Russia for creating a gas crisis in Europe, recently claiming that Moscow could increase supplies to the continent by at least a third if it wanted. But some analysts note that Russia's state-owned Gazprom may not be able to produce more gas than it is currently flowing.
"Gazprom is still producing at or very close to 100% oil and gas capacity, despite the fact that its exports are down," Ronald Smith, analyst at BCS Global Markets, tells NGW. "I think they are trying to keep domestic storage as full as possible for if/when demand spikes in the next month or two, perhaps in February, after the month-forward contract pricing drops by several hundred dollars. They may also be saving gas for spring, which will surely be a record refilling season for European gas storage."
While Gazprom is meeting its contractual supply obligations, it has faced criticism for not releasing more volumes onto the spot market. Some European politicians say the company is withholding supply to drive up prices and put pressure on the EU amid heightened tensions over Ukraine. But Smith rejects that Gazprom's actions are politically-motivated.
"The incentive structure just isn't there for them to sell gas on the spot market. Indeed, it would probably cost them billions of dollars if they did by lowering the price of their huge base of sales under hub-linked prices," he says. "It just so happens that Russia's political interests vis-a-vis gas and Gazprom's commercial interests are in almost perfect alignment right now."