Natural Gas Market Pummeled by Pandemic and Mild Winter

In a report released June 10, the International Energy Agency (IEA) said the combination of the COVID-19 crisis and an exceptionally mild winter in the northern hemisphere have put global demand for natural gas on course for its largest annual decline in history. Global gas demand is expected to fall by 4%, or 150 Bcm, twice the amount of the decline following the 2008 global financial crisis.

“As of early June, all major gas markets worldwide are experiencing falls in demand or slumps in growth,” according to the IEA’s latest annual market report, Gas 2020. For the year, more mature markets across Europe, North America, and Asia are forecast to experience the largest drops, accounting for 75% of the total decline in gas demand in 2020.

“Natural gas has so far experienced a less severe impact than oil and coal, but it is far from immune from the current crisis. The record decline this year represents a dramatic change of circumstances for an industry that had become used to strong increases in demand,” said Dr Fatih Birol, IEA’s executive director.

Global oversupply is pushing major natural gas indices to record lows, while the oil and gas industry is cutting spending and postponing investment decisions to make up for the significant shortfall in revenue. Although a rebound is expected in 2021, the IEA report does not assume a rapid return to the pre-crisis trajectory.

“Global gas demand is expected to gradually recover in the next two years, but this does not mean it will quickly go back to business as usual,” Dr Birol explained. “The COVID-19 crisis will have a lasting impact on future market developments, dampening growth rates and increasing uncertainties.”

After 2021, most of the increase in demand is foreseen in emerging Asia, led by China and India where gas benefits from strong policy support. The industrial sector in both countries is the main source of demand growth, making it highly dependent on the pace of the recovery in domestic and export markets for industrial goods. Repercussions from the COVID-19 crisis are set to result in 75 Bcm of lost annual demand by 2025. By comparison, this is the same amount as the increase in global demand in 2019.
The main drivers of future supply growth—U.S. shale and large conventional projects in 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.

New production and infrastructure projects are likely to come online amid growth trends that are markedly below earlier expectations, to further reinforce the prospect of overcapacity and low prices. Future investments, which will be needed in the long term to ensure the renewal of production sources and global security of supply, are overshadowed by the changed environment.

SOURCE: The Weekly Propane Newsletter, June 18, 2020. Weekly Propane Newsletter subscribers receive all the latest posted and spot prices from major terminals and refineries around the U.S. delivered to inboxes every week. Receive a center spread of posted prices with hundreds of postings updated each week, along with market analysis, insightful commentary, and much more not found elsewhere.