SHARE
Image courtesy of Steven Depolo/Flickr.

The International Energy Agency said Wednesday it expects global natural gas demand to weaken as oversupply issues loom.

The agency said in its 2016 Medium-Term Gas Market Report that liquefied natural gas demand growth is weakening in some major markets, including Japan and Korea.

“New liquefied natural gas supplies are coming online just as demand growth in some major markets weakens, resulting in major shifts in global gas trade patterns,” the agency said.

The IEA now expects global demand to rise by 1.5 percent per year by the end of its five-year forecast period, down from 2 percent projected in last year’s outlook.

China, India and ASEAN countries are expected to emerge as key buyers during the next five years.

Slower primary energy demand growth and the decline in the energy intensity of the world’s economy are to blame for the demand decline, the IEA said.

The IEA added that the share of gas in the global energy mix is still expected to modestly increase by 2021 while demand for coal and oil is expected to cool.

The agency said fundamental developments “point to oversupply” in the LNG market over the next five years.

That oversupply is expected to keep spot gas prices across the globe under pressure.

Europe is expected to absorb some of the “unwanted” LNG supplies thanks to the flexibility of its gas system and well-developed spot markets.

“We see massive quantities of LNG exports coming on line while, despite lower gas prices, demand continues to soften in traditional markets,” IEA Executive Director Fatih Birol said.

Lower coal costs and strong growth in renewable energy are also hindering the expansion of gas in the power sector, Birol added.

The IEA expects low spot prices to intensify competition among producers who want to retain or gain access to European customers.

“We are at the start of a new chapter in European gas markets” Birol said.

Despite weakening gas demand, global LNG exports are expected to “increase substantially.”

Between 2015 and 2021, liquefaction capacity will increase by 45 percent, mostly from the United States and Australia.

New projects in both countries have already begun ramping up production and several other projects are in the advanced stage of development.

Australia is expected to rival Qatar as the world’s largest LNG exporter by 2021.

Weaker-than-expected demand in Asia is also leaving several large LNG buyers in the region over-contracted, according to the report.

The agency said softening demand in Asia should help accelerate a transition towards more flexible contractual structures.

The IEA expects oil markets to rebalance before gas markets, a development that is expected to boost interest in moving to hub pricing and reducing oil exposure in long-term contracts.

Birol add that upstream investment cuts may have come “too late for global gas markets to rebalance during this decade,” but the spend cuts could be sowing “the seeds for tighter markets into the next decade.”