Europe’s gas demand set to decline in favor of coal – IEA

The energy agency projects demand for natural gas falling 4% on the continent in 2022

Europe’s natural gas demand is set to decline this year as buyers begin to favor lower-priced coal, the International Energy Agency said in the latest edition of its quarterly gas market report.

According to the IEA, gas demand on the continent is seen declining by 4% this year, after rising by more than 5% last year. The decline will be partially driven by a reduction in gas burning in the power sector, the agency said, which is seen declining by 6% this year.

The decline will be partially compensated by renewables, according to the IEA, which should see a “strong expansion” this year, but also “high gas prices continue to weigh on its competitiveness vis-à-vis coal-fired generation.”

“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 agency warned, adding that the adverse effects of the gas shortage were not limited to Europe.

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The report noted that developing markets were particularly vulnerable to energy supply shocks that they were already experiencing. On top of this, there was also concern for food supply due to tighter availability of gas-based fertilizers, the International Energy Agency also said.

Global gas supply is seen remaining tight, the IEA also said, citing production outages, project delays, and a slow pace of new investment decisions on new production capacity.

“In the absence of strong policies to curb demand growth to achieve net zero emission targets, gas supply adequacy could emerge as a concern for the medium term on a combination of recent LNG project delays, the relatively small number of new LNG final investment decisions (FIDs) in 2020-2021 and a structural decline in upstream spending since the early 2010s,” the IEA said in the report.

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