The track of the coronavirus pandemic and global demand for LNG will be major drivers of demand for U.S. natural gas through the coming year, the head of one of BP PLC's largest North American subsidiaries said.

Demand for gas to be liquefied and exported from the U.S. has recovered beyond prepandemic levels to nearly its maximum capacity, Orlando Alvarez, president and CEO of BP Energy, told the LDC Gas Forums 2020 Natural Gas Forum in San Antonio, Texas, and online.

Europe, which is leading demand for the fuel, could see its LNG intake drop amid new lockdowns caused by a second wave of COVID-19, Alvarez said. The pandemic's impact on fuels demand throughout the world could still have a major effect on gas demand in the coming year.

"We're not through it yet and how that manifests itself through the year 2021 is important," Alvarez said Nov. 10. The U.S. gas industry "is more dependent on the global economy than it's ever been, and that's exacerbated by the COVID[-19] and everything else that's going on. If you think about your projection for what you think is going to happen to gas prices ... more than ever you need to stay glued to what's going on in the rest of world because that's impacting our U.S. prices as much as I've ever seen."

Lower demand for oil-derived products — including gasoline, diesel and jet fuel — is also affecting the U.S. gas market as oil drilling drops in areas that were bustling prior to the pandemic. Drilling activity leads to an increase in production of so-called associated gas that is found along with oil. A slow down in production of associated gas could lead to volatility in prices, Alvarez said.

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"We've sort of taken associated gas production for granted," Alvarez said. "Associated gas production growth is no longer a guarantee. It's something we need to watch. Gas producers, gas consumers, this is something we all need to pay attention to."

Amid the fluctuating gas market conditions, London-based BP is working to diversify its production mix to remain competitive amid a shift in demand for less-polluting energy sources. While Alvarez expects demand for hydrocarbons will remain in place, electricity will increase its share of the energy market with renewables leading the way in the energy transition, he said.

"The more that we talk to customers, the more the demand is changing," Alvarez said. "Customers are asking for more than just a commodity. If you're an industrial customer that we sell gas to today, that industrial customer maybe wants fuel for power; they may want a carbon offset to go with their physical natural gas."

BP is developing products to meet the changing demand, including carbon-offset natural gas, Alvarez said. While the energy transition has already arrived, oil and natural gas use is unlikely to disappear in the near term, the CEO said.

"Oil and gas will be challenged, but it will still be part of the energy mix for decades," Alvarez said. "We need to make sure that we are doing our best to make it cleaner."