Global natural gas consumption is expected to contract slightly this year and grow slowly over the following three years as Russia’s war in Ukraine pushes up prices and fuels fears of further supply disruptions, the International Energy Agency (IEA) states in its latest ‘Gas Market Report’. 

The IEA notes that the current record-high gas prices are depressing demand and causing some gas users to switch to coal and oil, while recent sharp cuts in Russian gas flows to Europe are raising alarms about supplies ahead of the northern winter.

The turmoil is also said to be damaging natural gas’ reputation as a reliable and affordable energy source, casting doubts about the role it is expected to play in helping developing economies meet rising energy demand and transition away from more carbon-intensive fuels.

The IEA points out that recent developments have led to a considerable downward revision of gas’ growth prospects.

Global gas demand is set to rise by 140-billion cubic metres (bcm) between 2021 and 2025 – less than half the amount forecast previously and smaller than the 170 bcm increase seen in 2021 alone.

The downward revision in gas demand growth in the coming years is mainly the result of weaker economic activity and less switching from coal or oil to gas.

Only one-fifth of it comes from efficiency gains and substituting renewables for gas, highlighting the need for greater progress on clean energy transitions, the IEA says.

It adds that faster roll-outs of renewable power generation and stronger efforts to use energy more efficiently will ease pressures on energy prices and help price-sensitive emerging markets access gas supplies that can deliver rapid improvements to air quality and carbon intensity.

“Russia’s unprovoked war in Ukraine is seriously disrupting gas markets that were already showing signs of tightness.

“We are now seeing inevitable price spikes as countries around the world compete for liquefied natural gas (LNG) shipments, but the most sustainable response to today’s global energy crisis is stronger efforts and policies to use energy more efficiently and to accelerate clean energy transitions,” says IEA energy markets and security director Keisuke Sadamori.

The Asia-Pacific region is expected to account for half of the expected growth in global gas demand to 2025.

North America and Africa provide more modest contributions to demand growth.

Natural gas consumption is expected to grow in Africa at an average yearly rate of 2.6% over the forecast period. Demand growth is expected to slow compared with recent years, as natural gas has already reached a high share of the mix in mature North African markets, while growth potential in sub-Saharan Africa is challenged by the current high price environment.

The potential development of gas demand in Southern Africa is principally contingent on decisions to invest in domestic production, the IEA points out.

Natural gas consumption in South Africa has remained stagnant in the recent past, accounting for less that 3% of the country’s energy mix, according to the last versions of the country’s Gas Master Plan, issued in late 2021.

Considering the lead time to develop new supply chains, the Gas Market Report indicates that its forecast does not expect significant change in South African gas demand by 2025.

Moreover, the Master Plan emphasises the importance of affordability as a key success factor in the development of gas, which is noted by the Gas Market Report as casting a potential shadow on gas-based supply options, especially LNG import projects, in the current price environment.

Moving back to a world view, in terms of sectors, industry is expected to account for 60% of global demand. However, those projections are subject to downward risks from high prices and potentially lower economic growth.

The European Union’s (EU’s) commitment to phase out gas imports from Russia – historically, its largest supplier – is having global repercussions, as Europe’s surging demand for LNG draws in deliveries initially intended for other regions.

The Gas Market Report’s base case assumes that Russian pipeline gas exports to the EU will fall by over 55% between 2021 and 2025, but the report also considers an accelerated case in which it falls by over 75%.

LNG export capacity additions are set to slow down in the next three years as a result of curtailed investment plans during a period of lower prices in the mid-2010s and construction delays stemming from Covid-19 lockdowns.

This raises the risk of prolonged tight market conditions. While there has been a recent surge in LNG investment decisions, the resulting infrastructure will not be operational until after 2025.