Energy bills will strain consumers’ budgets this winter. This is the grim fallout of Opec+ group’s decision, announced on Wednesday, to cut daily oil production by two million barrels. Consumers in Europe will face the cost of keeping themselves warm this winter because of gas supply disruptions. Regular gas supply uncertainty continues with no sign of Russian-Ukraine hostilities ending.
Opec group’s decision to cut substantially oil production has upset US President Joe Biden’s administration. In a statement released on Wednesday, the US National Economic Council said. “The short-sighted decision disappoints President Biden while the global economy is dealing with the continued negative impact of Putin’s attack on Ukraine.”
Middle East commentators view the decision to cut oil production as a slight to the US' recent move to better ties with Saudi Arabia. Other analysts see Opec+ group’s decision as “geopolitical move” to rebuff Biden who is intent on choking Russian revenues and keeping petrol prices down ahead of congressional elections in November.
The International Energy Agency quarterly Gas Market Report, released this Wednesday, gives details on gas supply disruptions. “Russia’s continued curtailment of natural gas flows to Europe has pushed international prices to painful new highs. It has disrupted trade flows and led to acute fuel shortages in some emerging and developing economies. The market will remain tight well into 2023.”
Gas markets worldwide remain under pressure from 2021. World gas consumption may drop by 0.8 per cent this year. European gas markets have deflated by 10 per cent, though demand in the Asia Pacific region remains constant.
The IEA report says the forecast for world gas consumption will grow by 0.4 per cent in 2023. The report adds a note of caution. “The outlook is subject to a high level of uncertainty, with Russia’s future actions and the economic impacts of sustained high-energy prices”.
Russia has largely cut off gas supplies to Europe in retaliation against sanctions imposed on it following its attack on Ukraine. This has deepened market tensions and uncertainty ahead of the coming winter. Not just for Europe, but also for all markets that rely on the same supply pool of liquefied natural gas (LNG), says the IEA quarterly report.
IEA Director of Energy Markets and Security Keisuke Sadamori says, “Russia’s attack on Ukraine and sharp reductions in natural gas supplies to Europe are causing significant harm to consumers, businesses, and entire economies – not just in Europe but also in emerging and developing economies.
“The outlook for gas markets remains clouded, not least because of Russia’s reckless and unpredictable conduct, which has shattered its reputation as a reliable supplier. But all the signs point to markets remaining tight well into 2023.”
The current crisis casts a longer-term uncertainty on the prospects for natural gas. Developing markets will notice this more. Recent trends showed natural gas use would rise at least in the medium term. Gradually it will replace higher-emission fossil fuels.
European natural gas prices and Asian spot LNG prices shot up to record highs in the third quarter of 2022. This reduced gas demand and compelled consumers to use other fuels such as coal and oil for power generation.
Power shortages, cuts and load-shedding were the results of high prices in emerging economies. Europe’s gas consumption declined by more than 10 per cent in the first eight months of this year compared with the same period in 2021, driven by a 15 per cent drop in the industrial sector as factories curtailed production.
A few Asian countries bucked this trend. China and Japan saw almost no change in demand for natural gas during the same period. It contracted in India and South Korea. The IEA expects Chinese gas demand forecast to increase by less than two per cent in the last three months of this year. It would be the country’s lowest annual growth rate since the early 1990s.
Natural gas prices in the US reached their highest summer levels since 2008, yet North America was one of the few regions of the world where demand increased, supported by demand from power generation.
Europe has offset the sharp falls in Russian gas supplies through LNG imports, as well as alternative pipeline supplies from Norway and elsewhere. Europe’s surging demand for LNG – up 65 per cent in the first eight months of 2022 from a year earlier – has drawn supply away from traditional buyers in the Asia-Pacific region, where demand dropped by seven per cent in the same period because of high prices and mild weather.
Europe’s LNG imports will increase by over 60 billion cubic metres this year, or more than double global LNG export capacity additions, keeping international LNG trade under strong pressure for the short- to medium-term, closes the IEA report.
[Sudeep Sonawane, an India-based journalist, has worked in five countries in the Middle East and Asia. Email: [sudeep.sonawane@gmail.com]
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