Resilient Europe holds on to gas demand despite soaring prices, finds IEA report

Demand for natural gas across Europe remained mostly resilient despite soaring prices last year, and the record global rise in costs was not linked to the transition to clean energy, the International Energy Agency said in its quarterly gas market report released on Monday.

Following strong growth in the demand for gas in the first half of 2021, where it climbed up by 13 percent year-on-year, the outlook for European gas fell by nearly 5 percent in Q3 amid rising prices, IEA said.

The fluctuation in demand for gas was not the same across sectors in Europe, the IEA found. Gas demand for power production rose by close to 5 percent Y-o-Y in the fourth quarter, with regional differences.

“In northwest Europe, record-high gas prices supported gas-to-coal switching, coal-fired power plants increasing their output by 20 percent y-o-y. Gas-fired generation fell by over 7 percent. In contrast, the steep decline in hydro generation in southern European markets (down by 30 percent y-o-y) led to higher gas burn in the power sector, partially offsetting the decline in northwest Europe,” the IEA said.

Moderate decline and constrained supply

The IEA said that the demand is expected to decline moderately this year as continued high prices make coal more competitive for power generation. They added that emerging economies were particularly vulnerable to the price surge.

“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,” the IEA said in the report, released in Paris.

Meanwhile, the IEA said that a number of inter-linked factors such as weather-related issues, supply constraints and competition for liquefied natural gas (LNG) cargoes, were responsible for pushing gas prices to record highs.

European and Asian gas prices climbed to record highs last year, while US prices rose to the highest in a decade. This year, European gas and Asian LNG prices are expected to average $26 per metric million British thermal units (mmBtu) and $27/mmBtu respectively, both all-time high annual averages, according to data released by the agency.

However, the IEA categorically rejected any links between the gas price crisis and the transition to low-carbon energy. “Record gas prices resulted from tight market fundamentals and were not a consequence of clean energy policy outcomes,” it said.

EU statement on Russian gas dilemma

This year, overall Russian production is estimated at 763 bcm, up from 761 bcm last year, the IEA said. It highlighted power cuts, industrial demand destruction and potential food supply issues at stake due to the rise in gas prices.

EU governments and agencies have consistently drawn attention to Europe’s energy crisis in the backdrop of the Ukraine-Russia situation.

On Saturday, EU President Ursula von der Leyen and US President Joe Biden issued a joint statement on US-EU cooperation on energy security, noting that they were committed to Europe's energy security and sustainability and to accelerating the global transition to clean energy.

 “We also share the objective of ensuring the energy security of Ukraine and the progressive integration of Ukraine with the EU gas and electricity markets,” the statement said.