It was becoming increasingly difficult for natural gas to compete amid the availability of “very cheap” coal and the falling costs of renewable energy, the International Energy Agency (IEA) said on Thursday as it revised its five-year forecast for gas demand downward.

The agency, which initially believed that lower gas prices would drive demand following a marked slowdown in 2013 and 2014, now expected the average growth in demand for global natural gas over the next five years to contract from 2.3% a year to 2%.

The IEA’s 2015 ‘Medium-Term Gas Market Report’, released on Thursday, noted that, in the short term, the gas market would benefit from plunging prices; however, the long-term outlook for demand was less optimistic amid uncertainty – especially in Asia.

The report highlighted unexpected weaker gas demand in Asia last year, where “persistently high gas prices” resulted in consumers replacing gas consumption with other options and industry expanding its coal-fired power generation instead of gas-fired generation capacity.

“Indeed, the belief that Asia will take whatever quantity of gas at whatever price is no longer a given,” said IEA executive director Maria van der Hoeven.

The agency was sceptical of a quick recovery in demand for gas in Asia despite the rout in oil prices – to which Asia’s gas prices were indexed – in mid-2014, which enabled the region to significantly narrow its hefty premium on the gas prices enjoyed by other parts in the world.

Meanwhile, the lower oil prices would impact gas upstream and infrastructure investment, as companies cut capital expenditure on more costly, low-return projects and refocused on core assets with fast returns.

“Those projects currently under construction today are set to come on stream broadly as planned, as large upfront capital costs have already been incurred. Beyond that, however, new LNG plants will struggle to get off the ground,” she explained.

The report noted that the final investment decisions made within the next two years would determine natural gas supplies in the next decade, as several projects were scrapped or postponed.

This would result in slower production growth over the medium term and, should the current $55 to $70 price range persist, natural gas markets could start tightening substantially by 2020, with demand gradually absorbing the large supply upswing expected over the next three years.

The report expected global natural gas export capacity to rise in excess of 40% by 2020, with 90% of the additions emerging from Australia and the US.