IEA says gas prices have “hurt consumers, utilities and wholesalers”

Offshore gas drilling rig in the ocean with beautiful pink and blue sunset behind it (merger)
Offshore gas platform (Image: Shutterstock)

In its first quarterly gas market report for 2022, the International Energy Agency (IEA) says the current market situation is a stark reminder for gas-consuming countries of the importance of “implementing and updating their security of supply toolboxes”.

“Global natural gas consumption rebounded by 4.6 per cent in 2021, more than double the decline seen in 2020. The strong demand growth in 2021 was driven by the economic recovery that followed the previous year’s lockdowns and by a succession of extreme weather events. Supply did not keep pace which, combined with unexpected outages, led to tight markets and steep price increases, putting the brakes on demand growth in the second half of 2021,” the report stated.

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“The year closed with record high spot prices in Europe and Asia, as natural gas supply remained very tight. The direction of short-term demand will depend on the weather during the rest of the northern hemisphere’s heating season. Assuming normal temperatures, growth of the natural gas market is expected to be slowed by higher gas prices and softer economic expansion, while supply tensions may ease as offline capacity gradually returns. The exceptionally high gas (and by extension electricity) prices are likely to have an impact beyond just northern markets and the current season, with some ripple effects in both mature and emerging gas importing markets already visible.” 

This new issue of the quarterly Gas Market Report includes an overview of the main market highlights for 2021, and an analysis of recent gas market developments with a forecast for 2022.

“The year 2021 opened with cold spells that triggered price spikes in Asia in January and North America in February. These were followed by strong economic recoveries and other weather events, resulting in volume growth estimated at 4.6 per cent year-on-year. The year ended with all-time high natural gas prices in the main importing markets in Europe and in Asia. The combination of demand growth and lower-than-expected supply led to the extremely tight gas market situation that prevailed throughout the final months of 2021. This was especially the case in Europe, where limited Russian pipeline supply flexibility and below average underground storage inventory levels prompted additional anxiety from the start of the heating season,” the IEA reported.

“Natural gas prices have followed temperature variations over recent weeks, as the heating needs of residential and commercial customers in the main northern hemisphere markets drives gas demand. Meanwhile, the impact of weather conditions is being exacerbated by the extremely tight market situation in Europe, leading to extreme levels of price volatility. Mild temperatures, together with higher LNG inflow, moderated European prices at the start of 2022, but every new sign of colder weather or tighter supply quickly prompts price increases.  

“Uncertainty over prices and supply remained high as of early January, with most of the heating season still to come. Weather patterns are likely to remain the principal driver of both prices and volatility in the coming weeks, although there are also other physical, commercial and geopolitical factors at play.

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“Exceptionally high gas—and by extension electricity—prices have hurt consumers, utilities and wholesalers, and are likely to have a lasting negative impact beyond the current seasonal tension. The effects are not limited to Europe, as markets throughout the world experience the painful consequences of high gas prices. Emerging economies are particularly vulnerable, and are already experiencing power cuts, industrial demand destruction and potential food supply issues in the absence of affordable gas-based fertilisers.

“The current market situation is a stark reminder for gas-consuming countries of the importance of implementing and updating their security of supply toolboxes, including policies to protect consumers and to optimise the use of gas infrastructure, especially storage.”

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