Energy

The Covid-19 Crisis Highlights LNG’s Key Role in Global Natural Gas Security

Liquefied natural gas (LNG) remains central to ensuring the security of global natural gas supplies and has played a major role in the sector’s adjustment to the exceptional drop in global gas demand during the first half of 2020, the International Energy Agency said today in a new report.

Global gas demand is expected to fall this year by 3%, or 120 billion cubic metres (bcm), its largest annual drop on record, the Global Gas Security Review 2020 finds. The report highlights that LNG contracting activity is on a sharp downward trend from its 2018 high. Covid-19 is a major cause of the historic demand shock, but the strong decrease in contracting activity is largely the result of a well-supplied market. At the same time, investment decisions have come to a standstill. After a record-setting 2019, no new liquefaction projects have been confirmed so far this year.

In this slowdown, LNG continues to play a central role in balancing global gas markets and creating the flexibility to adjust to fluctuations in demand. Faced with an unprecedented fall in global gas demand in the first half of the year, gas producers and exporters have had to provide flexibility to adjust supply. LNG was one of the key components of this adjustment, with monthly global exports decreasing by 17% between January and July 2020.

“Since the IEA started tracking flexibility in LNG markets in the first edition of the Global Gas Security Review five years ago, we have seen a notable improvement across a range of LNG market flexibility metrics. This is improving security of supply and was critical in enabling the market to adjust to the historic demand shock witnessed in the first half of 2020,” said Dr Fatih Birol, the IEA’s Executive Director.

Global gas demand fell by an estimated 4% year-on-year in the first half of 2020 due to the combination of the Covid-19 crisis and an exceptionally mild winter in the northern hemisphere. Most of the declines in gas consumption took place in mature markets across Europe, North America and Asia. Taken together, these markets account for over 80% of the forecast drop in global natural gas demand for 2020.

During the second quarter of 2020, when lockdowns were at their peak worldwide, natural gas spot prices plummeted to their lowest levels in at least a decade across all major gas-consuming regions. But prices recorded strong gains in the third quarter, supported by supply adjustments and recovering demand.

Natural gas demand is forecast to increase by 3%, or about 130 bcm, in 2021. However, the recent resurgence of Covid-19 and the prospect of a prolonged pandemic have increased uncertainty over the pace of recovery in 2021. The recovery of global gas demand in 2021 is likely to be supported by fast-growing markets in Asia, Africa and the Middle East. More mature markets should see gradual recoveries, and some may not return to their 2019 levels until 2022 or later.

“Global gas demand has been progressively recovering since June, driven mainly by emerging markets,” Dr Birol said. “However, this does not mean a return to business as usual, as the current crisis could have long-lasting repercussions.”

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