Gas, coal consumption to weaken on global economic slowdown

BAKU, Azerbaijan, Oct.31

By Leman Zeynalova - Trend:

Gas and coal consumption is expected to weaken on global economic slowdown, Trend reports citing the World Bank’s (WB) Commodity Markets Outlook.

“Price forecasts for both commodities have been revised down for 2020. Natural gas prices are expected to stabilize, while coal prices will decline,” said WB.

The slowdown in global economic growth will likely lead to weaker consumption for both commodities particularly given the slowdown in the industrial sector (industrial uses account for about 20 percent of their total demand), reads the report.

However, the outlook is slightly stronger for natural gas than coal, as the ongoing shift to natural gas in electricity generation is expected to continue, particularly in advanced economies.

In addition, natural gas production growth, particularly in the United States, is expected to be weaker in 2020 as a result of a slowdown in new drilling, the WB believes.

As for the current situation, natural gas and coal prices fell in 2019 Q3 by 7 and 12 percent (q/q), respectively, said the report. Natural gas prices are now one-third lower, and coal prices two-fifths lower, relative to 2018 Q3.

“The shale oil boom has rapidly increased natural gas production in the United States, with output projected to rise by 10 percent in 2019 following a 12 percent gain in 2018. Despite robust demand for the cleaner-burning fuel (including record levels in the United States in 2019Q3), rapid growth in supply continues to put downward pressure on prices,” reads the report.

Coal consumption has fallen rapidly in advanced economies, as part of an ongoing shift to reduce emissions, said the WB.

“High carbon prices also added to coal consumption costs in Europe. In the United States, coal consumption fell 17 percent in the second quarter of 2019 (y/y), following a 6 percent decline the previous year. Low natural gas prices have encouraged an acceleration of the transition from coal to natural gas in electricity generation, and have therefore weighed on coal prices. The strongest growth in demand for coal remains in Asia, facilitated by new thermal power capacity (e.g., Malaysia and Vietnam), but a slowing manufacturing sector and growth in other fuels has limited growth in China.”

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Follow the author on Twitter: @Lyaman_Zeyn

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