Natural gas consumption grew 1.6% to 3528 bcm in 2016, according to CEDIGAZ, driven by multiple structural and temporary factors. This positive growth is similar to the previous year’s and also in line with Cedigaz short and medium-term natural gas demand forecasts.
These recent developments in natural gas demand illustrate the influence of mixed drivers. More affordable natural gas prices in 2016 have given a boost to natural gas and LNG demand in both industrialized (Europe) and emerging markets. In addition, colder than usual temperatures in the final months of 2016 in the main consuming markets had a strong upward effect on domestic gas sales. Reversely, moderate global economic activity, the decline in energy intensity, weak electricity demand in OECD markets and the strong expansion of renewables are still weakening gas demand growth. If we set climate effects aside, it can be noted that the expansion of natural gas demand has remained below the historical average. In the first three quarters of 2016, it increased at an estimated rate of only 0.5%, relative to the same period of the previous year.
The ramp of new LNG production accelerated in 2016 when 16 million tons of new LNG supply were added to the market, representing a 6.8% annual growth. This was the highest growth rate recorded since 2011 but it only represents the very beginning of the LNG wave that is about to hit the market. There are still about 110 mmtpa of new capacity under construction that are expected to start producing from now to 2020-2021. This equates to around 42% of the 2016 LNG demand that would come on line in a very short time, raising the question of the capacity of the market to absorb the additional volumes and at what price.
2015 saw the unexpected decline of LNG demand in Asia. This unsettling development had two main reasons. First the end of the Fukushima-driven growth in the JKT countries, especially in Japan, together with energy conservation policies led to a strong decline of LNG demand in the historical Asian markets. Second the collapse of Chinese LNG demand growth due to price issues and the competition with piped gas. On the bright side, 2015 witnessed the emergence of new buyers (Egypt, Jordan and Pakistan) – that were able to take advantage of the low price environment, thanks to the flexibility offered by FSRUs -, as well as accelerated growth in the MENA region.
The United Arab Emirates (UAE) is one of the world’s longest-established LNG exporters. But despite holding the world’s sixth largest gas reserves, LNG imports into the federation increased at an impressive rate since 2010, when the Jebel Ali floating terminal in Dubai started up. With gas representing more than 90% of the power fuel mix, LNG purchases have been key to fill a widening supply deficit in order to match rapidly growing gas-to-power demand. Today, LNG remains at the heart of the UAE’s strategy to meet rising energy consumption and support economic and industrial expansion in times of reduced oil income and budgetary constraints. Cedigaz’s latest report examines the risks and opportunities inherent to this strategy and asks whether it is viable in the medium to longer term.