- Global natural gas demand growth is forecast to shrink 60% by 2024, according to the IEA.
- The surge in energy prices over the last year will ultimately weigh on demand.
- Natural gas' reputation as an "affordable energy source" has been hurt since the start of the Russia-Ukraine war.
The surge in natural gas prices over the last year is prompting countries to turn to dirtier sources of fuel, despite their environmental commitments, and will utimately bring about a drop in demand over the next three years, according to the International Energy Agency (IEA).
In its quarterly market report on Tuesday, the IEA forecast total global consumption will contract slightly in this year and see only limited growth in the next three years of about 140 billion cubic meters between 2021 and 2025.
"That is less than half the 370 bcm increase seen in the previous five years and well short of the exceptional jump in demand of close to 175 bcm seen in 2021," the agency said.
Energy prices have skyrocketed since Russia invaded Ukraine, as Western sanctions over the country's imports have limited supply. Dutch natural gas futures, the regional benchmark, have soared by 150% so far this year alone. On Tuesday, they were trading around 175 euros per megawatt hour ($180), close to their highest since early March, in the immediate aftermath of Russia's invasion of Ukraine.
"The turmoil is damaging natural gas' reputation as a reliable and affordable energy source, casting doubts about the role it was expected to play in helping developing economies meet rising energy demand and transition away from more carbon-intensive fuels," the IEA said in the report.
Now, fears are mounting that Russia will cut off gas supplies to some countries, specifically Germany, in retaliation for sanctions and other measures aimed at damaging Moscow's finances.
A month ago, Russian state-controlled energy giant Gazprom said it was slashing flows of natural gas to Germany through Nord Stream 1 by 40%. To prepare for a complete shutdown of gas, Germany recently made a decision to fire up idled coal power plants.
"The high price and tight supply environment that built up during the second half of 2021 further intensified following Russia's invasion of Ukraine, leading to fuel switching and demand destruction," the report said.
US gas consumption is predicted to more or less stagnate between 2023 and 2025, while the agency expects European gas demand to drop by close to 9% this year.
"Limited liquefaction capacity additions, together with strong LNG demand from Europe and lower Russian piped imports, indicate that the current tight market conditions may linger into the medium term," the agency said,
It added however, that the current forecast is subject to unusually large uncertainty due to what it said was Russia's unpredictable behavior.