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IEA forecasts natural gas prices to moderate in the second quarter of 2022

CE Noticias Financieras  


    International prices of natural gas, whose record high price is causing exceptional increases in electricity and generating problems for several industrial sectors, will begin to fall in the second quarter of 2022, predicted the International Energy Agency (IEA).

    In its quarterly report on the gas market, the IEA considers that in the second quarter of next year the quotation in the Dutch TTF market (a reference in Europe) will fall 40% compared to the same period of 2021, a similar figure to that predicted for Asia, while in North America it will fall 18%.

    Despite the expected increase in production, the arrival of winter in the northern hemisphere will keep demand strong due to the need to use gas for heating, so prices will remain high during the cold season.

    Lower prices from the second quarter of 2022 onwards are expected to put an end to a situation of high prices and limited supply that has been dragging on since the summer and will continue in the coming months.

    "The 2021-2022 gas year started in October with record high gas spot prices in Europe and Asia, amid lower than average stock levels for the heating season ahead," the report states.

    The situation is due to a kind of perfect storm, with higher demand due to recovery from the shutdowns caused in 2020 and early 2021 by the pandemic; extreme weather events that generated more consumption (cold or heat waves, droughts that curbed hydropower production) and storms cut production in several areas.

    In turn, high gas prices have had a "domino effect" on electricity markets, with higher prices and partial substitution of gas by cheaper coal or oil, which in turn has increased CO2 emissions.

    Gas-electricity interdependence

    This succession of events has highlighted "the interdependence between natural gas and electricity supply security, a link that appears to be stronger than ever," the report stresses.

    However, high prices have prompted the acceleration of new natural gas production projects, especially in the United States and Qatar, which added to others already agreed before the pandemic but not yet implemented, "should be sufficient to meet the additional demand for gas in the coming years.

    By regions, the IEA notes that in Europe the price of natural gas soared in the third quarter of this year, to six times higher in the TTF market compared to 2020 and reach the highest level since the creation of that market in 2003.

    European gas consumption, which had risen 14% in the first quarter compared with the same period in 2020 spurred by the recovery, soared 25% in the second quarter but fell 4% in the third quarter due to lower consumption in the power sector, which opted to use more coal.

    Europe's natural gas-fired power generation fell 12% in the third quarter from the same period in 2020, while coal-fired generation soared 15%.

    In addition, the high price of gas is having repercussions in industrial sectors that make intensive use of this fuel, with temporary closures of some fertilizer production plants.

    In particular, these closures in the United Kingdom threaten to cause a shortage of CO2, a by-product of fertilizer production that is widely used in the food industry as a preservative and in the manufacture of soft drinks.

    European gas demand will rise 4.5% year-on-year in 2021, and is forecast to decline by 2% in 2022.

    In Asia, gas prices increased fivefold, due to strong demand from the recovery and several extreme weather events, but also because of low storage capacity in the region as a whole.

    In North America, the United States saw gas demand fall by 1% in the first nine months of the year as power generation cut consumption by 6% in favour of increased use of coal and renewables (28% and 5% year-on-year, respectively).

    Influence of the drought in South America

    Latin America saw thermal electricity generation almost double in the first nine months of the year (largely thanks to gas) as the worst drought in 90 years sank hydro output.

    Brazilian gas consumption rose 33% in the first half of the year, with increased imports from Bolivia from the Gasbol pipeline covering much of the rise.

    Chile also saw a 25% increase in gas consumption between January and August due to a 20% drop in hydroelectric production in that period.

    Gas consumption also jumped 43% in Central America and the Caribbean in the first eight months of the year, while in Argentina it stabilized between January and May, and in Venezuela it fell 33% in the first half of the year.

    The IEA forecasts that global demand from South and Central America will increase 4% during 2021 and experience a slight decline in 2022, assuming normal rainfall and temperatures.


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