(Bloomberg) -- The global natural gas market is poised for the biggest-ever drop in demand as a result of the Coronavirus crisis, an event that’s likely to hamper the industry’s growth for years to come.
Consumption is set to slump by 4% this year, or twice the amount lost after the 2008 financial crisis, according to the International Energy Agency’s Gas 2020 report. Global demand is expected to rise by just 1.5% annually to 2025, compared with a previous forecast of 1.8%.
“The record decline this year represents a dramatic change of circumstances for an industry that had become used to strong increases in demand,” said Fatih Birol, the IEA’s executive director. “The Covid-19 crisis will have a lasting impact on future market developments, dampening growth rates and increasing uncertainties.”
The outlook marks a retreat in optimism from the Paris-based IEA, which posited in 2011 that gas was entering a “golden age” as a bridge fuel for swapping out carbon-heavy coal for renewables. The bearish tone follows one of the warmest-ever winters in the northern hemisphere offering no respite from a shrinking global economy.
Annual gas consumption had already started to slow. In 2019 demand grew an estimated 1.8% amid mild temperatures and slowing economic growth, particularly in China. That’s in line with the average growth rate over 2010-17.
European demand fell by 7% year-on-year in the first five months of 2020 as coronavirus lockdowns curbed electricity consumption and industrial use of gas, according to the report.
Demand for gas in the power sector accounted for half of the decrease in worldwide consumption, it said in the report.
Recovery
Mature markets such as Europe and North America will recoup most of the losses next year and lower gas prices will help demand recover in China and Asian emerging markets, the IEA said. Growth in the three years to 2025 will largely come from fast-growing Asian markets.
The report is based on assumptions that the global economy will return pre-Covid-19 levels without a second pandemic, said Keisuke Sadamori, IEA’s director for energy markets and security. “But of course it depends. If a big second wave arrives in winter this year, for instance, the outlook would be substantially different.”
LNG
China will become the biggest liquefied natural gas buyer in 2023, overtaking Japan, while India’s consumption will approach that of South Korea, now the third-biggest consumer.
Slower growth in gas demand will mean liquefaction capacity additions will outpace LNG import growth through 2025, potentially reducing the prospects of a tighter market.
Global LNG trade will rise 21% by 2025 from 2019, reaching 585 billion cubic meters. The U.S. will become the biggest seller of the super-chilled fuel in 2025.
Europe
Despite battered demand, European imports of gas will increase by more than 10% in the next five years, representing an opportunity from external suppliers -- from Russia to LNG producers -- to bring in an extra 45 billion cubic meters a year of gas in that period.
©2020 Bloomberg L.P.