No Quick Rebound from Gas Demand Crash: IEA

For the first time since the economic crash of 2008, global gas demand will experience a year-on-year drop in 2020, after only tepid – 1.8% – growth in demand in 2019. And the fall, of an estimated 4%, will be twice as big as that earlier drop, according to the International Energy Agency (IEA) in a report published June 10, Gas 2020. 

Gas got off more lightly than oil, in terms of demand cuts: it is less used in transport which was the biggest loser of the Covid-19 pandemic. But the industrial slow-down and lockdowns generally hit gas demand, already sluggish after a mild northern hemisphere winter.

All regions are impacted, with mature markets across Europe, North America, Asia and Eurasia together accounting for about three quarters of 150bn m³ of lost gas consumption in 2020. US was down 2.5% in the first five months of the year and European demand was down 7%. Asian demand was however up. By sector,  power generation is the hardest hit, making up half of the total gas demand decline, followed by the residential and commercial sector and the industrial sector.

Demand recovery will probably be slow, but the low gas price will help stimulate it; as will government policies to decarbonise their economies, particularly in Europe which needs gas to run smoothly, the report's authors told a web-based press conference June 9. 

But for the moment, gas trade is slowing down as the sellers' netbacks are tiny, where positive; and there are no arbitrage windows as regional prices are uniformly low, the IEA said. So, although the IEA does not allow for a return of Covid-19 in its scenarios in its newly published Gas 2020 report, it also does not expect an 8% rise in demand next year, as there was in 2009 following the financial crash of 2008. On the other hand it sees some encouraging developments, especially with gas being used more in power generation worldwide.

For example, in the US, gas-fired power generation reached 38% of the total mix, a new record: up 8% or 123 TWh in 2019, against a sharp decline for coal (down 181 TWh). 

And it was a similar story in Europe: gas-fired power plants generated 11% or almost 70 TWh more while coal use fell by a quarter. That was largely due to Spain. Nuclear output was also down. and the decommissioning of coal and nuclear will create a space for gas: renewable energy is not growing fast enough, the IEA said. In China the coal-to-gas conversion programme, which was launched in 2017, also gave gas a helping hand in the industrial and residential sectors in 2019.

Fuel switching in industry and space heating in residential and commercial sectors used over half the total increase but again with local variations. Nuclear output rebounded in both Japan and Korea, which led to a decrease in gas for power estimated at 12% and 2% respectively. Turkey experienced record hydro, which hit gas in the power sector. And gas supply constraints in Iran led to more diesel being used in power.

Gas production last year grew 3%, surpassing the 4 trillion m³ mark for the first time in history, thanks to the US which added over 70% of incremental supply, rising 85bn m³, with the Appalachian and Permian basins contributing almost two thirds.

Russian gas production grew by 1.7% as the Yamal LNG project ramped up, while Azeri gas production grew by an impressive 28% (over 5bn m³) as the country rapidly increases gas output and exports from Shah Deniz II. China’s gas output grew by close to 10% (or 16bn m³), with shale gas and coalbed methane accounted for 40% of that.

European gas production fell by over 6% (or 15bn m³), driven by lower output from Norway’s swing fields (Troll and Oseberg) and rapidly declining Dutch gas production from the Groningen field, now entering its final years of service. This will increase the region's needs for imports.

Asian demand is also rising as more countries use more LNG for power generation: China and India are the two biggest unknowns. Japan and Korea by contrast have peaked, according to the IEA as more nuclear comes back on in Japan, while Korea is also adding coal-fired capacity.