IEA Raises Forecast for 2020 Gas Demand
The International Energy Agency (IEA) now predicts a 3% or 120bn-m3 fall in gas demand this year to 3.886 trillion m3, it said in its Global Gas Security Review 2020, after forecasting a 4% decline in June.
This still marks the biggest drop on record, driven by demand losses in mature markets across Europe, Eurasia, North America and Asia. Demand should rebound 3% in 2021, or by about 130bn m3. The recovery will come on the back of rising consumption in fast-growing markets in Asia, Africa and the Middle East, while demand in mature markets will rebound gradually and may not reach its 2019 level in 2021.
Pipeline gas suppliers took the biggest hit as a result of the coronavirus pandemic's impact on demand, with supplies down by around 15% in the first nine months of the year, the IEA said, owing to the greater flexibility of pipeline contracts compared to those for LNG, and because LNG prices fell sooner when demand collapsed. In Europe, pipeline sales were down 20% between January and August, with Russia accounting for most of this decline.
LNG exports also contracted significantly this year, though, "proving for the first time that LNG import capacity shortages are not just a theoretical possibility but they can actually happen on a large scale when there is a big enough market oversupply," IEA energy analyst Akos Losz said in a webinar.
US shipments were worst affected, as US exporters' contracts make cargo cancellations easier than under many LNG deals. Australia saw the second-biggest decline, but this was mainly due to unplanned outages. Next was Malaysia, which has a large share of uncontracted volumes in its supply mix. On the other end of the spectrum were countries like Qatar, which increased sales this year.
There was also a sharp, counter-seasonal increase in LNG floating storage this year, which helped to soak up the excess supply.
"Floating storage is a well-established practice in oil trading but it's a relatively new phenomenon of LNG," Losz said.
LNG contracting activity was strong in 2018 with contracts covering 95bn m3 of gas signed, but this shrank to 74bn m3 in 2019 and collapsed to only 35bn m3 this year to date. Buyers have also been opting for smaller and shorter commitments, with medium-term contracts lasting between five and 10 years accounting for around 40% of the total finalised this year, up from a 15% average over the past five years. Long-term contracts, which dominated in 2018 and 2019, had only a 35% share this year.
Contracts had a weighted average size of only 2bn m3/year in 2020, compared with over 5bn m3 over the past five years. Contracts with fixed destination clauses continued to lose market share in 2019, thanks to more flexible destination volumes entering the market from the US, but this trend reversed this year. Fixed destination contracts accounted for 80% of the total in 2020, versus only around a quarter in 2019.
Over the next five years around 190bn m3 of legacy contracts or about a third of current active volumes are due to expire, while global liquefaction capacity will expand by 20%. This will lead to a "critical increase in uncontracted capacity," analyst Jean-Baptiste Dubreuil said, creating new opportunities for buyers and challenges for marketers. The LNG market is unlikely to tighten before 2025, the IEA expects.