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Gas is only fossil fuel loser as coal gains share: Cedigaz

Natural gas was the only fossil fuel to experience a slowdown in global demand growth last year as coal and renewables gained market share in power generation, the International Center for Natural Gas Information said.

Demand for gas gained 1 percent in 2013 after rising 2.4 percent a year earlier and 2.8 percent in the decade to 2012, the Paris-based center, known as Cedigaz, said today in an e-mailed report. Coal consumption advanced 3 percent last year and crude-oil usage gained 1.4 percent, said the group, which counts companies from OAO Gazprom to BP Plc among its members.

“As seen in Europe, the double whammy of cheap coal and an increasing share of renewable power seriously undermines the business model of gas-fired power plants,” Cedigaz said. “Even in emerging economies, gas will not displace coal in the power sector without strong policy incentives.”

Gas-fired power plants accounting for almost 30 percent of Europe’s capacity are at risk of shutting or being mothballed as utilities opt to burn cheaper coal, Cedigaz said in June. Europe may run short of power because wholesale electricity prices are too low to encourage spending on new thermal plants, the International Energy Agency in Paris said the same month.

Growth in gas usage is slowing even in Asia, the demand “powerhouse,” Cedigaz said, with consumption in the region advancing 4 percent last year, against 6 percent in 2012. In the U.S., where the heating fuel costs about half as much as in Europe, coal use rose 4.4 percent in 2013 as gas demand from the power industry slid almost 11 percent, the center estimated.
Coal Competition

“Coal is three to five times cheaper than natural gas in gas-importing countries,” Cedigaz said. “Left solely to market forces, gas cannot compete with coal for base-load power and its role is limited to meeting peak-load demand.”

Slowing growth in global natural gas demand also results from “acute” shortages in some producing countries, according to the report. Global marketed production rose 1 percent last year, compared with a 10-year average of 2.5 percent. Reserves gained 0.5 percent to 200.6 trillion cubic meters.

“This slowdown is explained by growing coal-to-gas competition on the demand side and a gas-supply shortfall on the supply side, especially in emerging markets, where the lack of upstream investment is acute,” Cedigaz said. “Egypt, India and countries in the Middle East have seen low, regulated gas prices stimulate gas demand while discouraging the investments needed to boost production.”

Emerging economies faced with the prospects of increasing gas imports and higher state bills will have to carry out market reforms that include reviewing regulated prices, Cedigaz said. That may pose further risks to demand as higher prices make using the fuel less attractive.

“The recent announcement by the BRICs about the launch of a new development bank in response to restrictions by the U.S. and Europe on financing new coal plants abroad is a clear indication that those countries will continue to promote coal in the power sector,” Cedigaz said. “This challenge to the golden age of gas and the fight against climate change will have to be addressed through appropriate policies.”

Source: Bloomberg