LONDON, June 4 (Reuters) - Growth in natural gas demand will slow to an average 2 percent a year globally over the next five years, largely due to weaker than expected Asian markets, the International Energy Agency (IEA) said on Thursday.
Gas demand growth will decelerate from the average 2.3 percent recorded over the past 10 years, to reach 3,926 billion cubic metres by 2020, the agency said in its annual medium-term gas outlook report.
"One of the key, and largely unexpected, developments of 2014 was weak Asian demand," IEA Executive Director Maria van der Hoeven said in a statement.
"The experience of the past two years has opened the gas industry's eyes to a harsh reality: in a world of very cheap coal and falling costs for renewables, it was difficult for gas to compete," van der Hoeven added.
Asian gas prices are indexed-linked to oil prices which have fallen significantly over the past year. In the short term, gas demand will benefit from falling prices, but some Asian countries have decided to focus on coal-fired power generation instead of gas-fired.
The supply side will also feel the effects of lower oil prices. Companies are cutting capital expenditure and focusing on core assets with fast returns, which will lead to slower production growth over the medium term.
Liquefied natural gas (LNG) projects are easy targets for investment cuts, the report said, because they require a lot of capital and have long lead times, so several are likely to be delayed or cancelled.
There is little threat to projects already under construction, but new projects will struggle to get off the ground, the IEA added.
The LNG market will remain oversupplied, however, and Europe's LNG imports will roughly double over the next five years.
Despite this, European gas imports from Russia should remain locked in a range between 150 and 160 billion cubic metres due to higher demand and declining domestic production.
Overall, European gas imports are set to increase by almost a third between 2014 and 2020, the report said.
(Editing by David Holmes)
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