IEA cuts outlook for gas prices a third year as Asian demand falters

LONDON (Bloomberg) - Global natural gas use will rise at a slower pace than previously forecast amid lower-than-expected growth in Asian demand, said the International Energy Agency, cutting its outlook for a third consecutive year.

Consumption will rise 2 per cent annually in the six years through 2020, compared with last year's estimate of 2.3 per cent through 2019, the Paris-based agency said Thursday in its Medium-Term Gas Market Report. Usage in developing Asia excluding China will rise 2.9 per cent compared with a 2013 forecast of 3.9 per cent for the following six-year period.

Rising gas prices in Asia spurred users to switch to cheaper fuels, the IEA said. Demand growth hasn't rebounded even after prices for liquefied natural gas to Northeast Asia slumped 60 per cent from a record in February last year.

"The belief that Asia will take whatever quantity of gas at whatever price is no longer a given," Maria van der Hoeven, the IEA's executive director, said in a statement. "The experience of the past two years has opened the gas industry's eyes to a harsh reality: in a world of very cheap coal and falling costs for renewables, it was difficult for gas to compete."

Global gas demand growth will increase after slowing in 2013 and 2014, supported by stronger economic growth and lower oil and gas prices, the IEA said. While the competitiveness of gas against other fuels in most of developing Asia remains uncertain, China's push to reduce emissions should bolster demand for gas, it said.

A 48 per cent drop in Brent oil last year will also reduce the premium Asian buyers pay for gas compared with other areas of the world, boosting "short term" demand, the IEA said. Most Asian gas contracts are linked to crude.

"The rout in oil prices that began in mid-2014 has spilled over to natural gas markets in Asia and allowed the Asian premium to narrow," the IEA said. "But demand for gas in Asia may not recover as quickly as the drop in prices."

World gas demand will rise to 3.93 trillion cubic meters in 2020 from 3.5 trillion in 2014, the IEA said. China's gas use will climb 10 per cent annually to 314 billion cubic meters after slipping to a growth rate of 8 per cent to 9 per cent last year. Consumption in the rest of developing Asia is seen increasing to 355 billion cubic meters in 2020 from 298 billion in 2014.