Flames from a gas burner are reflected on a cooker in a private home in Bad Honnef near Bonn, Germany, October 11, 2021. REUTERS/Wolfgang Rattay/File Photo

LONDON, Jan 31 (Reuters) - European gas demand is expected to decline this year as continued high prices make coal more competitive for power generation, while Asian demand growth could slow, the International Energy Agency (IEA) said on Monday.

Last year, European gas consumption increased by an estimated 5.5% to 552 billion cubic metres (bcm).

However, demand is expected to fall by around 4.5% this year to 527 bcm, partly driven by reduced burning of gas in the power sector which could fall by 6% from 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.

European and Asian gas prices climbed to record highs last year, while U.S. prices rose to the highest in a decade, driven by reduced supply, low storage levels, infrastructure outages and competition for liquefied natural gas (LNG) cargoes.

Although European coal and EU carbon prices also jumped, they lagged behind the spike in gas prices, causing short-term marginal costs to shift in favour of using coal to generate electricity. read more

In Europe, lower-than-usual pipeline supplies from Russia, coupled with concerns about supply disruption in the event of sanctions against Russia if it invades Ukraine, have helped to keep prices elevated into this year and still incentivise more coal use in countries that can shift between fuels.

This year, European gas and Asian LNG prices are expected to average $26 per metric million British thermal units (mmBtu) and $27/mmBtu respectively - both all-time high annual averages - due to continued low stock levels and reduced supply, the IEA said.

Currently, Dutch gas at the TTF gas hub for March is around $30/mmmBtu, while Asian spot LNG for March is $27/mmBtu.

High prices are expected until the middle of the year and then could decline if supply availability improves, the IEA said.

In the United States, however, Henry Hub prices are expected to average close to 2021 levels, at $4/mmBtu.

Despite a drop in Russia's pipeline exports in the fourth quarter last year, in 2021 overall the country's pipeline exports to Europe, including Turkey, rose by 4% year-on-year, while flows to the European Union declined by 3%.

This year, overall Russian production is estimated at 763 bcm, up from 761 bcm last year, the report said.

In Asia, gas demand increased by 7% last year but is expected to slow to 5% growth at 950 bcm this year. Chinese demand jumped by 12% last year amid a rebound in economic activity but could moderate to 8% growth at 394 bcm this year due to slowing economic growth, higher import prices and more normal seasonal weather.

India's gas demand is expected to increase by 8% this year, following a 5% rise in 2021. In North America, gas demand inched up by 0.9% last year and is forecast at around 1% growth this year at 1,091 bcm.

Our Standards: The Thomson Reuters Trust Principles.

Asian spot liquefied natural gas (LNG) prices continued to rise this week amid stronger demand on the back of a blistering heatwave in Japan and a return of competition with Europe which is gearing up for possible disruption of Russian gas.

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