Gas market to experience 'largest demand shock on record' in 2020: IEA

London — The global gas market is expected to experience its "largest demand shock on record" in 2020, the International Energy Agency said June 10, with consumption set to fall 4% on the year as the coronavirus pandemic hits an already weakened market.

In its latest annual gas report, the IEA also said that while gas demand was expected to recover gradually in 2021, the medium-term impact of the virus would dent gas demand growth.

"As of early June, all major gas markets are experiencing a fall in demand or sluggish growth at best as is the case of China," the IEA said.

The agency said that although lockdown measures are being gradually lifted, its forecasts do not assume that economies will recover promptly, leading to 150 Bcm of lost demand this year, or a 4% decline.

The decline in demand has, though, been revised up from an initial estimate of 5% demand decline published at the end of April in the IEA's Global Energy Review.

"The magnitude of the impact remains however unprecedented," the IEA said.

"This would be the largest recorded annual decrease in consumption since the gas market developed at scale in the second half of the 20th century, and the drop would be twice bigger than the latest downturn in 2009, when demand fell by 2%," it said.

Preliminary estimates put the world's gas consumption in 2019 at around 3.99 trillion cu m, so a 4% decline would see demand slip back to around 3.83 Tcm.

The world's more mature gas markets across Europe, North America, Asia and Eurasia together are expected to account for about 75% of lost gas consumption in 2020.

In individual demand sectors, gas for power generation is the hardest hit, the IEA said, making up half of the total demand decline, followed by the residential and commercial sector and the industrial sector.

Consumption for power generation is expected to drop by around 5% year-on-year, while gas use in the residential and commercial sector is set to fall around 4% globally, accounting for 20% of total consumption loss.

The industrial sector also accounts for close to 20% of the global decrease, dropping by about 4% year on year in 2020.

The agency said that in addition to the direct impact of reduced activity during lockdowns, gas demand from industry is further dampened by the slowdown in consumer spending for manufactured goods.

DEMAND RECOVERY

The IEA was also pessimistic about gas demand recovery in the medium term. "In spite of an expected gradual recovery in 2021, the COVID-19 crisis will have long-lasting impacts on gas markets," the IEA said, with the main medium-term drivers of demand growth subject to several key uncertainties.

It said that the repercussions of the 2020 crisis on growth were set to result in 75 Bcm of lost annual demand by 2025, which is the same size as the global annual increase in demand in 2019.

"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," IEA executive director Fatih Birol said.

"The COVID-19 crisis will have a lasting impact on future market developments, dampening growth rates and increasing uncertainties," Birol said.

Most of the post-2021 growth, the agency said, takes place in Asia, led by China and India where gas benefits from strong policy support.

In both those countries, the industrial sector 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.

The agency said that mature markets in Europe, Eurasia and North America, which were the hardest hit in 2020, are expected to recover most of their consumption losses in 2021 as demand from the industrial and power generation sectors gradually returns.

"Some marginal gains are also expected from coal-to-gas switching, helped by low gas prices and ample supply, while residential heating demand is assumed to return to normal after an exceptionally mild winter in 2019/20," it said.

Further growth during the 2022-2025 period is mainly driven by fast-growing Asian markets, it said.

For the period 2019-2025 as a whole, the IEA forecasts an average demand growth rate of 1.5%/year to 4.37 Bcm in 2025.

The average annual growth rate of 1.5%/year to 2025 compares with an initial forecast which assumed an average growth rate of 1.8%/year over the same period.

LNG TRADE

Despite the demand growth limitations, the IEA said LNG trade would increase 21% by 2025 to 585 Bcm/year.

Emerging Asian markets remain the driving force behind the expansion of LNG imports, led by China and India, while the US accounts for almost all of the net growth on the export side, it said.

However, a fall in new investments could see a longer-term tightening of the market, Keisuke Sadamori, director of energy markets and security at the IEA, said during a webinar.

A lack of new investment in liquefaction capacity could "cast a long shadow on the gas value chain, which can put at risk the future market balance," Sadamori said.

China alone is expected to account for 22% of total LNG demand in 2025, contributing almost 40% of growth in total imports over the forecast period.

India also leads LNG growth accounting for about 20% of incremental trade, and sees its imports increase by 50% between 2019 and 2025 to support strong growth in demand.