IEA: Natural gas demand grew in 2018

According to the IEA, natural gas demand has increased in 2018, with a consumption rise driven by China

Natural gas has seen a significant evolution in the market in recent years, due to several economic and geopolitical aspects that have shaped the market for this energy source. Among the changes introduced is a rise of demand, according to the International Energy Agency in its recent report Global Gas Security Review.

“Global natural gas markets are being reshaped by the development of major emerging LNG buyers led by China, and the rising production and exports from the United States,” the organization revealed in a press release.

Demand for natural gas grew by 3 percent in 2017. This is the largest increase seen since 2010 and it was driven by China, which accounted for 37 percent of the demand.

The rise in Chinese demand stems from several events that unleashed an increase of natural gas consumption and the inability to increase supply at the rate required throughout 2018.

Causes of the rise in China’s natural gas demand

China’s demand for natural gas grew by a whopping 14.5 percent in 2017. Government policies greatly influenced this trend, especially thanks to a plan to replace coal with natural gas, implemented in residential and industrial areas.

Liquefied Natural Gas imports surged by 46 percent in a year, and accounted for 80 percent total gas imports.

China had a supply shortfall over the last winter. Usual suppliers Uzbekistan and Turkmenistan were unable to meet their obligations with the Asian giant due to local production and supply problems. Therefore, the service was interrupted.

European deficit

A series of technical issues affected the United Kingdom’s gas supply, the second largest gas consumer in the EU behind Germany. At the same time, an incident at a Baumgarten plant, in Austria, interrupted supply to Italy and other European nations.

This deficit was added to the phenomenon known as the Beast from the East; a cold wave with extremely low temperatures and heavy snowfall.

The UK went through its seventh coldest day in 58 years, causing gas consumption to go up to seven-year highs.

In this scenario, gas prices in the United Kingdom hit 20-year highs, reaching $50 per MBTU (million British thermal units).

Meanwhile, a gas crisis hit Ukraine after the government renovated an agreement to restore gas supply from Russian Gazprom. EU gas purchases went down by 80 percent after this pact. However, Russian gas supplies never arrived.

The Ukrainian government was immediately forced to purchase gas from EU members once again. A temperature drop also reflected in higher demand. Poland, Hungary, and Slovakia helped meet the energy shortfall.

These critical situations sparked a rise in demand, which was met with the help of external players. Although it is not the only factor of interest in the market this year.

The evolution of the natural gas market

The global natural gas market could grow by an average rate of 1.6 percent per year to 4 trillion cubic meters by 2022. 30 percent of said increase would stem from LNG demand, the IEA estimates.

Among other factors, the popularity of liquefied natural gas is a result of the evolution of contractual terms. Most of the documents signed were under the Free on Board model, where the buyer is liable for the shipment and has more destination flexibility.

Another particularity of the market is that it is progressively abandoning long-term contracts. Short-term contracts are gaining ground and increased exponentially in 2017.

Prior to 2014, only 8 percent of LNG contracts were short-term. On the contrary, they accounted for 24 percent in 2017.

Similarly, the average contract duration was 16 years in 2014. Now, it is just 4 years.

The trend of short-term contracts and destination flexibility is expected to expand.

For more information, check Energía16

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