Oil is trapped in a downward spiral. Excess U.S. production and declining demand threaten to condemn the market to a surplus that will persist over the years. From the International Energy Agency they have spoken openly about the arrival of a massive oil surplus which would generate a new price equilibrium. More specifically, the IEA predicts that crude oil production will increase to around 113.8 million of barrels per day at the start of the decade and that this will result in an extraction surplus of around 8 million barrels, or around 2 million more than today.
With these perspectives and despite the fact that many claim victory anticipating that What happens with oil will have an echo in all markets energy, the reality is that this breakdown of the crude oil market can lead to mistakes, since what is proposed as the main energy market of the world in the future is in a completely opposite situation: natural gas and LNG.
To get an idea of the importance of this type of energy, even if oil represents 32% of the European energy mix, according to data from the European Commission, natural gas already represents almost 24%, being by far the second largest source of supply. In terms of consumption, it is third (21%) compared to 40% for oil and 22% for electricity.
However, Europe’s and the world’s plans call for a gradual reduction in demand for crude oil in favor of liquefied natural gas (LNG), natural gas and renewable energy. Goldman Sachs explains that although the expected decline in crude oil demand has been delayed due to the weak implementation (for now) of electric cars and the powerful awakening of Asia as a consumer, it recognizes that we would already be “near the top” and instead of decreasing drastically, it anticipates “a few years of stabilization” then falls more sharply in the 2030s.
Although this differs from the AIE, since this expectation is already a drop in demand of 200,000 barrels daily since 2027, then stabilized in 2029, bringing it down to 100,000 and then, subsequently, falling much more intensely. However, the gas’s path could be entirely different, creating a brutal deficit for an industry that must increase production at an accelerated pace if it is to arrive on time.
The Energy Research Institute (IER) speaks openly of shortages, particularly for the EU because it is betting everything on the increase in renewable energies which may not be produced. “Net-zero carbon emissions scenarios fail to anticipate the rapid increase in energy consumption, which the International Gas Union says could lead to a deficit of 22% in the supply of natural gas by 2030″, comments the institution. In the scenarios provided by Rystad, a Norwegian energy intelligence consultancy, and by the IEA, they show that it will be difficult to cover the demand with the projects under construction and even increase it in a clear way.
Gas, the world’s great bet
Global gas demand increased by 1.5% last year compared to 2022 and is expected to increase by another 2.1% this year due to strong demand growth in Asia. “Natural gas plays a key role in the fight against the “energy trilemma”: sustainability, security and affordability” IER comment. The reason is that natural gas has an excellent balance with renewable energy when setting up an energy system.
Met Group explains that, although it is not a clean energy, it is not as polluting as oil and at the same time “it is a reliable source with efficient and guaranteed storage and transportation “. This combines very well with green energies which, although cheaper and cleaner, have their greatest weakness in this “cannot be stored efficiently. For its part, gas “generates less greenhouse gases than its peers”. This is why Met believes it makes sense for natural gas to act as a “bridge” between a non-renewable world and a renewable world.
In this sense, the IER warns against a gas paralysis with a paralyzed industry, taken by surprise by the awakening of consumers in the East. According to the latest IEA data, Asia turned in the first half of 2024 your gas demand by 60%thanks to China and India which are increasing their orders. “The contraction in LNG supply combined with strong growth in Asian demand put a strain on the global gas balance in the second quarter.”
“China will account for 48% of the Asia-Pacific region’s additional gas consumption between 2021 and 2050”
Looking ahead, the Gas Exporting Countries Forum (GECF) has claimed that Asia will account for more than 65% of new gas demand over the next decade in which the deficit will occur. The reason is partly demographic, since they expect its population increases by 11% and but also social and political. First, they expect that “nearly a billion people will begin to live in urban areas”, places where the consumption of this energy is much more common than rural localities where others predominate.
On the other hand, the countries of the region are immersed in a coal disconnection program and, to compensate for the abandonment of this model, they will move towards gas. “China will account for 48% of additional gas consumption of the Asia-Pacific between 2021 and 2050. Faced with concerns about air quality, China has proposed increasing the share of natural gas in its energy mix from 8.5% in 2021 to 15% in 2030 “, comments the GECF.
A new energy crisis?
In this sense, the IER affirms that the lack of gas projects will eventually cause the energy crisis experienced with the war in Ukraine, where energy prices have skyrocketed due to the threat of a reduction in the share of Russia, which would be the prologue to an era of shortage. . So far, the old continent has managed to obtain supplies thanks to record LNG shipments from the United States across the Atlantic, while Norway has remainedor as a great bastion of the continent thanks to gas from the North Sea and the gas pipelines which supply all the countries of the North. Additionally, increased shipments from Algeria and Qatar have been key to minimizing Russian gas. However, this balance could run into big problems as the world becomes more and more hungry for this raw material.
“The market is attempting to create an unprecedented amount of new capabilities in a short period of time. It’s not easy to achieve,” explained Ira Joseph, member of the Center for Global Energy Policy at Columbia University. The doubt that this university offers is that, perhaps, the projects in the United States and in Russia, the two axes on which an increase in supply could be built, but they are paralyzed for different reasons.
First, the Biden signing ban new exports to assess the impact of the same in their own market. This has led many gas companies in the country to reduce production. Likewise, Western sanctions against Russia led it to suspend its main project, the Arctic LNG 2 plant.
“We haven’t seen much growth in LNG supply, but demand has increased”
These two factors, although circumstantial, could anticipate the problems that leading industry experts are warning about. Rabobank explains that unless rapid changes occur on these two fronts, “there will be a mismatch between supply and demand for the second half of 2025“, defended Florence Schmit, the company’s energy strategist. Lucas Schmitt, WoodMac analyst, agreed, saying that “the delays have made the expected drop in prices less pronounced than at the start of the year.”
For their part, companies in the sector warn that the future is bleak, unless increase production now. “We haven’t seen a lot of growth in LNG supply, but demand has increased,” Mark Simons, head of gas and power generation at TotalEnergies, said at a recent conference in London. . The market is “reasonably tight and, as a result, European prices are high, as traders are worried about the situation in winter.” According to the senior official, the situation could worsen soon.
Shell recognized that in the long term we face a market “structurally adjusted”. The company said in a report this year that it expects demand for LNG to skyrocket 50% by 2040 “as the transition from coal accelerates in Asia.” It now remains to be seen whether, after the US election, there can be a reactivation of projects and whether an industry drilling at a faster speed can end the threat of shortages before it happens. Regardless, the future of the gas market will be key to defining energy markets in Europe and around the world.
