Global natural gas market demand will drop by 4%, or 150 bill cu m this year, as consumption takes a hit from the economic impact of the coronavirus pandemic.
However, a gradual recovery in demand is expected in 2021 and 2022, but the impact of the coronavirus will be long lasting, increasing uncertainties and dampening growth rates, according to the latest International Energy Agency (IEA) report.
Any demand recovery is likely to be led by LNG and will be headed by Asian countries.
A major concern is that much of the demand rebound will come from China and India, but this is dependent on whether Asia’s two fastest growing major economies continue with gas-friendly policies, or whether they go back to coal imports, the IEA said.
China is expected to overtake Japan as the world’s biggest LNG buyer, with imports of 128 bill cu m per year by 2025, equivalent to about 174 mill tonnes, or almost three times the 60.25 mill tonnes imported last year.
But the IEA said that this scenario is “highly dependent on China’s future policy direction”, which will need to include ongoing coal-to-gas switching for industry and residential heating.
China’s future coal-to-gas switching policies remain uncertain, after previous strict moves in favour of natural gas in order to reduce air pollution, were relaxed last winter.
The country has also allowed the planning and construction of new coal-fired power plants to proceed, and even be accelerated, as part of plans to boost the economy after the coronavirus-induced slowdown.
For India, the IEA expects an increase in demand of 28 bill cu m per year during 2019-25, as the country moves towards a goal of increasing the share of natural gas in the energy mix from 6% to 15%, as well as improving LNG and pipeline infrastructure.
India’s industrial sector is viewed as the prime driver of increased LNG demand, although the roll-out of city gas networks and compressed natural gas fuel stations means the residential and transport sectors are also important.
Another key issue for India is price. The IEA said that the current low spot price for LNG in Asia will continue for some time.
Final investment decisions (FIDs) taken in recent years should lead to up to 120 bill cu m per year, or about 163 mill tonnes, of additional LNG capacity being added between 2020 and 2025.
“Slower growth in natural gas demand is likely to weigh on average utilisation rates of liquefaction plants, creating a situation of overcapacity as liquefaction growth out paces incremental LNG trade, thus limiting the risk of a return to a tight market before 2025,” the IEA said.