IEA Sees End to Natural Gas Glut

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"Relief is on the way for gas investors. . ."

Relief is on the way for gas investors who got hammered during the recession, but they'll have to wait a while: The natural gas glut will probably peak next year and fade gradually over the next decade as demand rises strongly in China.

The tentative end of the glut, which pushed down the value of gas-heavy investment funds by about 40 per cent during the recession, was one of the main conclusions of the International Energy Agency's flagship World Energy Outlook report, released Tuesday in Paris and London. The 738-page report predicted the surplus would rise to 200 billion cubic meters next year, up from 130 billion this year, followed by a "hesitant decline" over the next decade or so, suggesting prices may have bottomed out but will not bounce back quickly.

The IEA is bullish on gas over the long term because burning it for electricity generation and other uses does the least environmental damage of the main fossil fuels, and because it appears that China is developing a voracious appetite for the fuel. The IEA said global gas demand will rise 44 per cent by 2035, with China accounting for more than a fifth of that increase.

"China could lead us into a golden age for gas," the IEA said. "Demand in the Middle East increases almost as much."

The IEA report landed as commodity prices, fueled by the U.S.' new $600B QE program, surged and as Qatar, the top exporter of liquefied natural gas (LNG), predicted at the Singapore Energy Summit that the gas market would come into balance in as little as three years—a somewhat more bullish forecast than that of the IEA.

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