Based on case studies of four countries (UAE, Russia, Argentina and Pakistan), this new report by CEDIGAZ analyses the influence of subsidies on gas supply and demand dynamics.
EXECUTIVE SUMMARY
Gas price subsidies have a significant effect on the gas consumption. Simply put they embody the inexorable link between the price of a good and its demand. By artificially lowering the price of gas, it can become more competitive as a fuel, potentially even crowding out other fuels or technologies, as well as encouraging excessive consumption that would not have occurred in the absence of subsidies. The extent to which either of these situations are the case is dependent on the subsidies of a given country with two particular factors; price/level of discount and how much of the population it is available to. The cheaper the gas the more widespread and heavy its use (or the use of a byproduct of gas such as electricity, heat or water) will be. Additionally if subsidies are extended to larger parts of the population then not only does that increase the amount of users whose consumption may be wasteful but it also extends cheaper gas to richer households who are typically higher consumption users and therefore capable of wasting more. It therefore follows that any countries wishing to reduce or cut their subsidies will likely see their gas demand fall.
The NBP rose to €18.5/MWh ($5.7/MBtu) at end November, but could not withstand various downward pressures, including that of mild December temperatures. The 9.2°C average reported by the “Met Office” in the U.K. broke the 1934 record of 6.9°C. As a result, the level of demand was relatively low, about 200 mcmd compared to 250 mcmd under average weather conditions. In reaction, the December NBP price slipped to €16/MWh ($5.1/MBtu), down 7% in one month. The first January quotations are in the vicinity of €15/MWh ($4.9/MBtu), equivalent to the prices reported in July 2014.