Gas demand to decline for the first time in 50 years

International Energy Agency (IEA), the energy watchdog, expects gas demand to fall for the first time in 50 years. "In the natural gas sector, we have moved from a tight supply and demand balance with high gas prices to an easing one with falling prices. Both markets face uncertainty surrounding the timing, pace and extent of any economic rebound, which affects all prognoses for oil and gas market fundamentals over the next five years," said Nobuo Tanaka, Executive Director, IEA. The agency yesterday released two reports – medium-term oil market report 2009 and the natural gas market report 2009. The IEA also warned of an impending crisis because of falling investment. The report comes a day before the Gas Exporting Countries Forum (GECF), a group of 15 gas producers, meet for annual summit. The IEA said gas markets are suffering because of a decline in demand in the OECD countries. "In the natural gas sector, the year 2008 was neatly divided into two halves: a tight supply and demand balance with rising energy prices was followed by demand weakening and spot prices falling. "The year 2009 bears the legacy of this last period as the world goes through the unprecedented combination of a global recession and financial crisis. "After a one per cent increase in 2008, OECD gas demand fell by four per cent during the first quarter of 2009 and is expected to further decline through the year," said an IEA release. "The Natural Gas Market Review 2009 projects that for the first time in 50 years, the world will witness a drop in global gas demand," it added. Excess supply and new Liquefied Natural Gas (LNG) production capacity would under normal circumstances be a reason for rejoice. But that is now robbing the lustre out of the gas markets, said IEA. "On the supply side, 60 billion cubic metres (bcm) of LNG capacity are planned to come online this year. Yet with spot prices in the United States bottoming out at below $4 per MBtu, the question for 2009 is how rapidly US unconventional gas production – which is generally expensive and therefore less competitive – will decline." The combination of weak demand and lower prices could undermine future investments, said IEA in a repeat of the warning it had issued earlier on oil. "Despite the expected relief on engineering, procurement and construction costs, project sponsors face both financing problems and increasing uncertainty about when and at what pace the economy and therefore gas demand will recover. Besides the recession, the increasing awareness of climate change issue puts a question mark on the future role of gas," it said. "If investments in production and supply infrastructure are delayed, there is a risk in the medium term of tightening markets when demand recovers. "While liquefaction capacity will see an unprecedented growth of 50 per cent between 2009 and 2013, there will be a dearth of new capacity in the period after 2013 unless new projects are approved in 2009-2010," it added. Keep up with the latest business news from the region with the daily Emirates Business 24|7 newsletter. To subscribe to the newsletter, please click here .