MOSCOW (Pakistan Point News / Sputnik - 14th May, 2020) The demand for natural gas is expected to shrink by some 3-5 percent in 2020 as a result of the COVID-19 crisis and the subsequent economic slowdown, however, the outlook for the demand varies among countries, analysts told Sputnik.
Unlike oil, which slumped to historically low prices in April due to the coronavirus pandemic, OPEC+ differences and economic meltdown, gas prices have remained relatively stable. However, the global demand for gas is expected to fall by 5 percent this year, the International Energy Agency (IEA) said last month.
Even though such a decline is much lesser than the oil demand slump, it still represents a big shock to the gas industry. But there is still a chance that demand may fall only by some 3 percent if the post-lockdown recovery in Europe and North America would be fast, according to the IEA.
The gas demand has proved more resilient as it used in power generation - providing electricity to households - while oil is mainly used in the sphere of transport, which has significantly diminished due to the lock-down measures, according to Werner Antweiler, a professor with the Sauder school of Business at the University of British Columbia (UBC).
"The market for natural gas is more resilient than the market for crude oil. Natural gas is used to a large extent for electricity generation and for home heating, which is much less volatile for business activity than the use of oil. Oil products are used primarily in the transportation sector, moving goods and people. Electricity use has only decreased slightly because of the COVID-19 pandemic, and thus natural gas use has remained rather stable compared to oil," Antweiler told Sputnik.
Gas prices are also less prone to short-term market volatility, as it is much more common to engage in long-term supply contracts that typically last 20-30 years. Apart from that, the gas industry is facing a delayed impact from the COVID-19 and oil crises, as the pricing policy on natural gas differs from that of oil, according to the UBC professor.
"During the current pandemic, oil indexation is hurting natural gas producers, but with some delay. This is because natural gas price indexing uses 3, 6 and 9-month average prices for heating fuel and heavy fuel (in European markets) and petroleum (in Asian markets)," Antweiler said.
Gas will see the least impact from the current energy crisis, while oil will suffer most and coal will be in between, the expert noted.
"The outlook for natural gas is cautiously optimistic, but with major uncertainties remaining. Energy demand is expected to contract during 2020, and some of the reaction in natural gas markets may be delayed as much depends on the trajectory of the economic recovery," the UBC professor added.
According to Jonathan Stern, the professor with the Oxford Institute for Energy Studies, the demand for gas is expected to fall by 3 percent in 2020.
"We expect global gas demand to be down 3 percent this year but this fits with our GDP decline projection of the same number; if GDP decline is greater than maybe gas decline is greater; gas demand is generally correlated with GDP. We don't have a specific scenario for 2021 but if the recovery is V-shaped ie GDP recovers by Q4 this year and beyond then we expect a fast recovery in gas demand in Asia (especially China and India) - as long as prices stay low - but slower in Europe," Stern told Sputnik.
Antweiler also believes that the figures will vary regionally, as demand in India and China will suffer the least.
"Overall, we can expect about a 5% decline in worldwide demand for natural gas in 2020. There will be regional differences. Energy demand over all of 2020 is expected to fall (in percentage terms) more in the United States and the European Union, and less so in India and China," the UBC professor said.
At the same time, the investments in gas production and the development of new projects may decrease substantially due to the energy crisis and economic slowdown, according to the quarterly gas review recently released by the Oxford Institute for Energy Studies.
The energy companies now have less money to invest in new gas ventures and will likely delay the projects currently under construction, while potential projects might be shelved.
It is also likely that banks and hedge funds may no longer view gas projects as an attractive investment due to high market risks, according to the report.
The Oxford Institute for Energy Studies projects that a low-price gas environment, which began a year before the crisis, may last for even longer than previously expected. However, the situation may change if gas producers - such as Russia, Norway, Algeria and Qatar - manage to agree on some output cuts mirroring the OPEC+ agreements.
