BAKU, Azerbaijan, Aug.11
By Leman Zeynalova – Trend:
Worldwide, natural gas demand is expected to decline by 0.8 percent this year, significantly softer than the 5.9 percent decline we forecast for oil, Trend reports citing Fitch Solutions.
“In large part this reflects differences in the sectoral make up of demand. Most importantly, natural gas draws only a small share of its consumption from the transport sector, with the power, industrial and residential sectors dominating instead. The disruptions stemming from the pandemic have dented demand from power producers and industry. However, restrictions on mobility have far exceeded those on economic activity to date. In addition, natural gas has enjoyed some (limited) offset from coal-to-gas switching in the power sector and some increase in residential demand,” reads the report.
Fitch Solutions said that the sectoral makeup of demand also has implications for long run demand trends.
“Demand destruction will be heavily concentrated in the transport sector (first and foremost road transport), which will do little to dampen the demand for gas. In developed markets, natural gas will see growth eroded by rising EV penetration and decarbonisation of the residential and (to a lesser degree) industrial sectors. However, the erosion will be relatively gradual and more than offset by growing demand among emerging markets,” reads the report.
Given its environmental benefits, cost advantages over liquid fuels and – in the context of rapid growth in the global LNG market – potential improvements in security supply, natural gas has increasingly been targeted by EMs looking to diversify and green their energy mixes, according to the company.
“We believe that the investments being made into gas-based infrastructure in support of this diversification will prove resilient to the coronavirus, cushioning demand in the long run. This is evident in the data, which shows the pandemic destroying just 1 percent of global gas consumption in 2029. Unlike oil, the bulk of the Covid-19 related natural gas demand destruction is concentrated in developed markets,” the report says.
It is in DMs that natural gas faces the greatest competitive pressures from renewable generation and alternative fuels and as a result, the policy-led push towards gas is slowing or reversing in many of these countries, Fitch Solutions believes.
“It is perhaps unsurprising then that the demand destruction is greater for DMs, given that policy offers less protection to gas in these markets. Moreover, in some countries (largely in the EU), fiscal packages unleashed in response to the coronavirus have looked explicitly to accelerate the green energy transition. This may too be eroding consumption, although the impacts will likely be marginal.”
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