Over the next decade, natural gas demand globally will grow at a slower pace as the industry responds to emerging financial and policy pressures brought on by the novel coronavirus pandemic.
That’s the conclusion of a new cross-divisional energy transition report from S&P Global units S&P Global Platts Analytics and S&P Global Ratings.
A broad slowdown in energy demand caused by the pandemic will bring about an earlier-than anticipated-reckoning for the fossil fuels industry, the authors say, with a bumpy road ahead predicted for gas – even more so than for other fuels.
Global demand for gas will continue growing over the next 10 to 20 years, according to the report, even outperforming the gains for other fossil fuels – thanks principally to demand growth from China, India and the Middle East, which, taken together, should account for a majority of the global gain in gas demand to 2030.
In Western Europe, gas demand will grow just 1.4% to 2030, as the EU’s Green Deal shifts the continent away from reliance on carbon-intensive fuels, accelerating the phase-out of gas in its transition.
In North America, gas demand is actually forecast to contract by 2.5% over the next decade, as efficiency gains, fuel substitution and weaker power demand cut usage in the power generation and residential-commercial sectors. Modest growth in demand from North America’s industrial sector, fueled by competitively fuel low prices, should at least partially offset contracting demand in other sectors.
“The road to growth is both narrowing and becoming shorter for gas. Both commercial and policy-driven forces are intervening,” said Ira Joseph, head of Global Gas and Power at S&P Global Platts Analytics and co-author of the report. “One of the ironies for gas is that it has been one of least effected fossil fuels during COVID-19, but will probably be the most effected after.”
Financial, policy pressures
As nations across the globe continue to grapple with the ongoing pandemic, a resulting global economic slowdown has weakened energy demand and boosted price volatility in energy markets.
For the global gas industry in particular, the transformed environment brings new financial and policy pressures to bear, according to the report.
In the upstream, global oversupply and record-low gas prices, exacerbated by the pandemic, have put increased financial strain on an industry already weakened by persistently low commodity prices. In North America, many producers are facing intense scrutiny from investors and, increasingly, limited access to capital and debt markets required to fund their operations.
In the midstream, weakened demand has resulted in the cancellation of pipelines, LNG projects and other infrastructure. According to S&P, the next global wave of LNG supply, with nearly 180 million mt/yr due to come online by 2026, has been delayed by the pandemic by some 12 to 24 months.
In the downstream sector, global oversupply has made many major consumer countries and end-users less willing to sign long-term supply offtake contracts – for both financial and policy reasons.
According to a recent forecast from Platts Analytics, global gas prices should remain in the $4 to $5/MMBtu range through 2021. With many anticipating prices to remain around that level for significantly longer, the perceived risk in signing additional long-term supply contracts has become amplified as many end-users consider possible, unforeseen changes in long-term demand could come from a rapidly evolving clean-energy sector.
Source: Hellenic Shipping