Soaring gas prices as winter approaches are likely to drive a switch to oil that boosts global crude demand by several hundred thousand barrels per day (bpd) squeezing already tight supply, analysts forecast.
Natural gas prices, particularly in Europe, have spiked this year buoyed by a combination of low inventories, low supplies and higher Asian demand.
The jump in energy costs has led manufacturers to curtail activity from Spain to Britain and helped sparked power crises in China.
And the leap in gas prices is set to send the substitution of oil for gas to generate power to unprecedented levels, Swedish bank SEB has forecast.
“This has never happened before at such a global scale. The market has always tried to substitute from costly oil to much cheaper natural gas,” Bjarne Schieldrop, chief SEB commodities analyst, said.
“This is now totally turned around. The magnitude of the switching from natural gas to oil is hard to pinpoint but estimates are from 500,000 bpd or higher.”
Speaking at the Energy Intelligence Forum this week, Saudi Aramco CEO Amin Nasser also put the demand boost at 500,000 bpd.
JP Morgan went higher, putting the potential bump in global demand for oil-fired power generation as high as 2 million bpd but said a 750,000 bpd rise through March is more likely.
The Paris-based International Energy Agency offered a more conservative estimate of 150-200,000 bpd into the first quarter of next year, saying countries most likely to perform the switch included Middle Eastern states, Indonesia, Pakistan and Bangladesh.
Oil prices hit multi-year highs this week as the OPEC+ group of producers stuck to a plan to boost output by 400,000 bpd in November despite expectations that rebounding demand will outpace supply in the short term.