The impact of the coronavirus epidemic on the world economy has delivered “a historic shock” to global gas markets, causing a huge drop in demand that will take years to recover, the International Energy Agency (IEA) said on Wednesday.
In its latest report on the gas sector, the IEA projects that global gas demand in 2020 will decline by 4.0 percent, or by 150 billion cubic metres (bcm), double the decline that took place after the 2008 financial crisis. The report also noted that “exceptionally mild winter” in the Northern Hemisphere further exacerbated the drop in natural gas demand which is set to decline by “historic” proportions this year.
“As of early June, all major gas markets worldwide are experiencing falls in demand or slumps in growth,” the Paris-based Agency said. “For the full year, more mature markets across Europe, North America and Asia are forecast to see the biggest drops, accounting for 75 percent of the total decline in gas demand in 2020.”
The IEA commented that gas might be less affected by the coronavirus pandemic than oil or coal “but it is far from immune from the current crisis” and the demand fall-off represents “a dramatic change” for a sector that was used to strong increases in demand. The report predicted a rebound in 2021 but warned that there are no grounds to “assume a rapid return to the pre-crisis trajectory.”
Despite a projected recovery in the next two years, “this does not mean it will go back to business as usual, the Covid-19 crisis will have a lasting impact on future market developments, dampening growth rates and increasing uncertainties,” cautioned Fatih Birol, the IEA Director-General in a statement.
The demand recovery will largely take place in emerging economies in Asia, led by China and India, but will depend on growth in economic and industrial activity in these countries where industry is the largest consumer of natural gas, the report indicated. Even so, the IEA said that the current coronavirus crisis and its economic impacts will account for a loss of 75 bcm of gas demand by 2025, which corresponds to all the demand gains made during 2019.
On the production side, the report said that the main drivers of supply growth – the US shale sector, the Middle East and Russia – “are also under pressure from the current oil price collapse and uncertainty surrounding demand trends over the short and medium term.” While Liquefied Natural Gas (LNG) is expected to remain the main driving-element in international gas transactions, it could face over-capacity due to output increases and investment already planned for LNG projects “New production and infrastructure projects are likely to come online amid growth trends that are markedly below earlier expectations, reinforcing the prospect of overcapacity and low prices.
This casts a shadow over future investments, which will be needed in the long term to ensure the renewal of production sources and global security of supply,” the report observed.
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