Medium-Term Gas Market Report 2015

Executive Summary

The International Energy Agency (IEA) published the 2015 Medium-Term Gas Market Report, highlighting significant changes in the global gas market landscape. The report underscores how oil prices have drastically fallen, leading to strong spillover effects on gas markets. This has resulted in reduced capital expenditure by oil and gas companies, focusing on core assets and canceling low-return projects. Consequently, the five-year production projection for gas has been reduced by 140 billion cubic meters.

Market Outlook and Challenges

1. Production Growth: Slower production growth is expected due to reduced capital expenditures. This reduction has implications for supply and investment in the gas sector.

2. Regional Impact:

   • Asia: Gas consumption in Asia, previously seen as a future engine of growth, proved unexpectedly weak in 2014. This has led to oversupply in liquefied natural gas (LNG) markets, with regasification infrastructure standing idle and spot LNG prices falling sharply.
   • Demand: In some countries, slower production growth exacerbates shortages, constraining demand. In others, genuine demand weakness casts doubt on future outlooks.

3. Economic Viability: High LNG prices have reduced the viability of gas as a fuel. Consumption growth is declining amid tough competition from coal and renewables.

4. Policy and Environmental Considerations:

   • Environmental Policies: Strong environmental policies can enhance gas's position as a transitional fuel, offering flexibility and reducing carbon emissions and air pollution compared to other fossil fuels.
   • Supply Availability: Ample and cheap supplies are crucial for ensuring a bright future for gas. The industry must now demonstrate the ability to produce gas economically at prices significantly lower than recent levels.

Future Projections

1. Short-Term: Lower oil prices should lead to a re-acceleration in gas demand in the short term.
2. Long-Term: The long-term outlook remains less clear, depending on the industry's ability to adjust and policymakers' willingness to reform.

Uncertainties

Several uncertainties surround the report's outlook:

• Technological Advances: Potential large-scale shale gas developments in Mexico and Argentina.
• Geopolitical Changes: Rapid uptake of gas in the transportation sector.
• Strategic Policy Shifts: The emergence of Iran as an LNG exporter or further acceleration of Russia's shift to the East.

Conclusion

The report emphasizes that change is the only constant in dynamic gas markets. To ensure a bright future for gas, the industry must prove it can deliver production economically at lower prices, and policymakers must implement supportive policies.

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Note: The full report provides detailed analyses and data on various aspects of the gas market, including specific country and regional insights.