Eve here. OilPrice overestimated the potential shortage of diesel, so take this forecast with a pinch of salt. But they point to a series of factors that make gas demand likely to exceed supply without a near-term solution. Of course, this could change if the global economy slows significantly.
Higher gas prices lead to more inflation. And this is the type of inflation that central banks cannot fight except by completely killing the economy. Therefore, high fuel prices are likely to result in economic mismanagement.
Irina Slav is a writer for Oilprice.com with over 10 years of experience writing about the oil and gas industry. Originally published here: oil price
- Global natural gas demand is growing faster than expected, with the International Energy Agency (IEA) warning that a lack of production investment could lead to a supply shortage.
- Reduced Russian gas supplies could lead to further volatility in international gas markets as Europe becomes more dependent on LNG.
- The slow expansion of LNG supplies is driven by rising construction costs, regulatory issues and environmental policies.
The International Energy Agency predicted that natural gas demand would increase more than initially expected. reportedRecently. While he expects demand to remain strong next year, he warned that supply problems could arise because supply is not growing fast enough.
Just a year ago, the International Energy Agency predicted that oil and gas demand would peak before 2030. Based on this forecast, the IEA stated that no additional investment is needed for the production of either hydrocarbon. There now appears to be insufficient investment in new natural gas production. So there is a shortage going on.
Just a few years ago there was significant oversupply in the LNG market. Everyone was busy building LNG plants, and supply increased faster than demand. However, over the past few years, many countries have turned to liquefied fuels as a cleaner and less expensive alternative to coal. Of course, prices have changed since the era of oversupply, especially in 2022, when many Asian LNG buyers were priced out of the market by wealthy Europeans, suddenly cutting off most Russian pipeline supplies.
Since then, Europe has consolidated its position as a major LNG importer and is now preparing to end the last remaining Russian pipeline gas flows after Ukraine said it would not renew its transport contract with Gazprom. This means Europe needs more LNG, but new supply is not enough. What this means is that it’s another price shock, and poor countries trying to reduce their dependence on coal are once again being priced out.
Given the rosy outlook for gas demand, one might wonder why new supply is coming so slowly at this point. The IEA is the latest in a series of forecasters predicting increased population transition away from coal and increased demand for raw materials thanks to artificial intelligence.
There appear to be several reasons for the slow expansion of supply. One is purely physical, according to a recent Bloomberg report. report This is a look at the imbalance in the natural gas market. LNG production plants take time to build and face rising construction costs and increased regulatory burden in the United States, the world’s largest producer and exporter of the fuel. To make matters worse, an LNG project has just been approved. Canceled by the court on grounds related to climate change.
There is also a so-called pause in new LNG capacity, which may not be relevant to immediate demand but will be relevant in the medium term as demand for natural gas continues to increase due to the rush of tech giants and artificial intelligence. . It was adopted by the Biden administration earlier this year based on a single study claiming natural gas is worse for the atmosphere than coal. Although some criticized the study for its flaws, it was enough to strengthen the future gas supply market for the U.S. federal government.
The European Union, despite its strong appetite for LNG, has not helped itself. The bloc recently passed new legislation: methane regulation This is to ensure that only low-emission LNG enters the EU. Of course, this makes it more expensive for suppliers to build production facilities, adding to the final cost of the fuel. Fortunately, the rule could free up the supply of uncertified LNG to less wealthy buyers, reducing demand pressure on suppliers.
“Increasing global gas demand this year and next reflects the gradual recovery from the global energy crisis that hit the market,” Keisuke Sadamori, director of energy markets at the IEA, said in a press release on supply and demand trends. . “However, the balance between demand and supply trends is fragile and the risk of future volatility is clear,” Sadamori said.
This is an interesting observation given the IEA’s firm belief that demand for hydrocarbons is being squeezed by alternative energy sources such as wind and solar. This belief led the agency to repeatedly forecast peak demand for oil about four years out and peak demand for gas about two years out. Now, gas demand still appears to be closely tied to economic growth, or lack of economic growth.
Europe is struggling to register any growth and access to cheap gas is key to a successful outcome of this struggle. Various international organizations concerned with the Earth’s climate are calling for Asian countries with growing energy needs to use more gas than coal. This requires low gas prices, which cannot be achieved anytime soon. Another stumbling block in the obstacle course of transition.
