Last year, European gas consumption increased by an estimated 5.5 percent to 552 billion cubic meters (bcm), despite prices soaring worldwide amid a global supply chain crisis.
But in 2022, IEA expects demand to decline by over 4 percent to 527 bcm, partly driven by reduced burning of gas in the power sector which could fall by 6 percent compared to 2021, the IEA said in its quarterly gas market report.
“Gas-fired power generation is expected to decline amid the strong expansion of renewables, while high gas prices continue to weigh on its competitiveness vis-à-vis coal-fired generation,” the report said.
“Distribution network-related demand is foreseen declining on lower space heating requirements, assuming a return to average weather conditions in Q1 and Q2 after an unseasonably cold spring in 2021,” IEA said.
However, demand for gas in the industry is “expected to continue to recover, reaching close to its pre-2020 levels.”
Gas prices across Europe and Asia soared to new heights last year amid a global reduction in supplies, leaving consumers facing more expensive bills.
Meanwhile, prices also rose to their highest in a decade in the United States amid the global low supplies and storage levels as well as infrastructure outages and competition for liquefied natural gas (LNG) cargoes.
But while European coal and EU carbon prices also increased last year, those rises were outpaced by that of gas, and as a consequence, short-term marginal costs have shifted in favor of using coal to generate electricity, IEA said.
“Exceptionally low natural gas prices in 2020 had enabled substantial coal-to-gas switching in power generation across different regions and markets,” IEA said.
“The most visible switch occurred in the United States, but gas also grew at the expense of coal in Europe and in several Asian markets. However, this trend had already begun to change in the second half of 2020 with the progressive recovery of natural gas prices.”
The shift toward coal occurred later in Europe amid a strong rebound in the demand for electricity in the second quarter of 2021 compared to 2020, which benefited both coal and gas, the report said.
“In the second half of 2021, rising prices worked against the use of gas in power generation. Coal-fired generation grew by over 11 percent in Europe in 2021, while gas-fired generation declined by 1 percent,” IEA said. “High natural gas prices also negatively affected demand from industrial consumers, who either switched to alternative fuels or reduced output in the final months of 2021.”
The move from gas to coal comes as Britain is expected to face higher energy bills in April when a cap on energy prices will be raised and taxes are hiked.
Joe Malinowski, founder of TheEnergyShop.com warned that some families could soon be paying upwards of £500 more annually, though this could be even higher.
