Natural gas industry won’t recover in near term through 2020

Natural gas industry won’t recover in near term through 2020

BAKU, Azerbaijan, May 19

By Leman Zeynalova – Trend:

Natural gas industry won’t recover in the near term through 2020, Trend reports citing GlobalData.

“The slowdown amid COVID-19 is affecting the natural gas consumption over the next few months with the largest demand declines expected from commercial and industrial sector. Reduction in demand will be offset marginally by residential power usage with upcoming summer weather. Natural gas industry will not recover in the near term through 2020, with dry gas production expected to remain at approximately similar level as 2019, accompanied by high level of working natural gas inventory and reduced demand due to current economic slowdown,” said GlobalData.

Rystad Energy estimates global natural gas demand to fall by almost 2 percent this year as a result of the lower activity.

“In absolute terms, we expect global gas demand to total close to 3,878 billion cubic meters (Bcm) in 2020, down from 3,951 Bcm last year. In our pre-Covid-19 estimates, this year’s natural gas demand was expected to grow to 4,038 Bcm.Like oil demand, gas demand is also expected to suffer as a result of the slowdown. However, low prices are shielding gas demand to some extent as the fuel remains more competitive than other sources of energy, especially in the power sector where gas use remains relatively stable in most countries,” reads the report from Rystad Energy.

Rystad Energy’s Head of Gas and Power Markets Carlos Torres-Diaz believes that 2020 will be the first year since 2009 where there will be no growth in consumption.

This will be a hard blow for an industry accustomed to yearly growth rates of more than 3 percent, he added.

“The impact on gas demand has varied substantially from country to country depending on the severity of lockdown measures and factors such as the power mix and industrial activity. Countries with capacity to switch from coal to gas will see less effect from the demand drop. A lot of uncertainty remains about the actual impact on gas demand. The possibility of new lockdowns, the slowdown in economic growth and the effect of stimulus packages on reactivating commercial and industrial activity could all tip the gas-demand scale,” reads the report.

This uncertainty represents a downside risk for gas demand for the rest of the year.

However, Rystad Energy has forecasted natural gas production to be around 4,000 Bcm in 2020 based on the lower investment activity expected across the E&P industry during this year.

“Given that global gas storage capacity is very limited and that a lot of the gas production is driven by liquids, producers will push these volumes into the market. This could trigger a demand response to absorb the additional volumes, but this will be very dependent on gas prices remaining competitive to coal. Our forecast is for European gas prices (TTF) to average $3.3 per MMBtu and Asian spot prices to average $3.8 per MMBtu this year, which is below the coal-to-gas switching range in most countries,” reads the report.

Therefore, if coal producers manage to reduce prices further and the steep contango in the gas forward curves remains, then there is a risk of seeing a slowdown in gas demand towards the end of the year, according to Rystad Energy.

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Follow the author on Twitter: @Lyaman_Zeyn

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