By Tsvetana Paraskova – “IEA states Natural Gas Demand To See Largest Drop Ever In 2020”

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IEA: Natural Gas Demand To See Largest Drop Ever In 2020

By Tsvetana Paraskova - Oct 12, 2020, 11:00 AM CDT

https://oilprice.com/Energy/Energy-General/IEA-Natural-Gas-Demand-To-See-Largest-Drop-Ever-In-2020.html

Despite some uptick in consumption in recent months, the world’s demand for natural gas is still set to see its biggest drop on record in 2020, the International Energy Agency (IEA) said on Monday.

According to the agency’s new report, Global Gas Security Review 2020, global natural gas demand is set to decline by 3 percent, or by 120 billion cubic meters (bcm), this year, the largest drop ever.

Four months ago, the IEA had forecast that natural gas demand would drop by 4 percent year on year in 2020, or by 150 billion cubic meters. This would represent twice the amount of demand lost after the 2008 financial crisis, the IEA said back then. Gas demand in all regions will be hit, but the biggest impact will be felt in mature markets across Europe, North America, Asia, and Eurasia which together will account for about 75 percent of lost gas consumption this year, the IEA said.

Now the Paris-based revised up its demand outlook for this year, but it still expects a drop that would be the largest decline in history of global gas markets.

“In spite of this revision, 2020 is still assumed to experience the largest recorded drop in global natural gas,” the IEA said.

Next year, natural gas demand is set to increase by 3 percent compared to 2020, but increased uncertainties cloud the outlook, according to the agency.

“The resurgence of Covid-19 cases and the prospect of a prolonged pandemic brings further uncertainty to the pace of recovery in 2021, which has led to a downward adjustment from the previous report. The recovery of global gas demand in 2021 is likely to be supported by fast-growing markets in Asia, Africa and the Middle East,” the IEA said.

Recovery is set to be slower in more mature markets, which may not see demand returning to the pre-COVID-19 levels until 2022 or later, the agency warned. 

“Global gas demand has been progressively recovering since June, driven mainly by emerging markets,” IEA’s Executive Director Fatih Birol said in a statement.

“However, this does not mean a return to business as usual, as the current crisis could have long-lasting repercussions,” Birol added.  

By Tsvetana Paraskova for Oilprice.com

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Natural Gas prices rose on early trading today - https://tradingeconomics.com/commodity/natural-gas

https://www.tradingview.com/chart/

 

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Related...

EXCERPT from Irina Slav

...Russia is already Europe’s second-largest supplier of LNG, after world leader Qatar. Last year, it exported 16 million tons of the super-chilled gas to Europe, up from just 7 million tons in 2018. The United States, in comparison, exported 12 million tons of LNG to Europe....

Russian LNG Gets A Climate Change Boost

By Irina Slav - Oct 12, 2020, 4:00 PM CDT

https://oilprice.com/Energy/Energy-General/Russian-LNG-Gets-A-Climate-Change-Boost.html

https://arctic-lio.com/nsr-shipping-traffic-activities-in-january-june-2020/

Russia’s Novatek said last week it planned to triple current liquefied natural gas production rates to as much as 70 million tons annually by 2030. That’s despite the current glut that has depressed LNG prices globally and the damage to demand done by the pandemic. The company has a major ally in that ambition, and it’s not Putin. It’s the Northern Sea Route.

In September, shipments of liquefied natural gas from Novatek’s Yamal LNG facility via the Northern Sea Route hit 700,000 tons, according to an Argus Media report. That amount broke the record of 623,000 tons shipped in August and substantially increased the amount of LNG shipped from Yamal a year earlier. And shipments will continue to grow as the Northern Sea Route remains open for maritime traffic for longer.

The Northern Sea Route, along Russia’s 24,000-km Arctic border, saw 935 voyages made in just the first half of the year, according to the NSR information office. This was a substantial increase on both the first half of 2019 and 2018, despite the pandemic. In fact, the strongest month for the NSR was April, when Europe and the United States were on lockdown. But that’s not all. Most of the shipments along the route were LNG and oil. Novatek’s Yamal facility accounted for 257 voyages, while oil and oil product shipments from the Arctic Gate terminal accounted for the second-largest chunk of voyages, at 228.

From an environmental standpoint, the melting of the Arctic ice is a worrying development. From a business and economic standpoint, however, the warming of the Arctic climate offers abundant opportunities. When it comes to Novatek and LNG, it offers it the opportunity to utilize the shortcut between Europe and Asia for longer periods every year. This would undoubtedly have an effect on its prices, and that effect would be favorable.

“There are many more ships because the ice is thin and you can sail without the help of icebreakers,” the editor-in-chief of Norwegian High North News, Arne O. Holm, told the Wall Street Journal recently. “The NSR needs a lot of investment to attract bigger cargo vessels, but activity is picking up, and if the ice keeps melting it will be another option to move cargo from northern China to Europe.”

Banks appear to be keeping an eye on these developments and what they could mean for future trade. No wonder, then, that a number of banks have pledged a total of $9.5 billion in funding for Novatek’s second LNG project, the Arctic LNG 2. According to a Reuters report, the China Development Bank and German Euler Hermes are among the lenders that have made pledges, and French Pbifrance is yet to decide on the funding. The China Development Bank is, unsurprisingly, the most generous backer of the $21-billion Arctic LNG 2 project, with $5 billion.

Arctic LNG 2 will have a liquefaction capacity of $19.8 million tons of LNG annually divided among three liquefaction trains. It should be operational in 2023 and reach its full capacity by 2026, and Novatek has already ordered a fleet of 14 ice-class LNG tankers to be constructed for the future output from the project.

Russia has ambitious plans for expanding its presence in LNG. Energy Minister Alexander Novak recently told an industry event that the country eyed a 25-percent share of the global LNG market. He added that by 2025, Russia should have a total liquefaction capacity of 68 million tons.

“We already have the largest gas production potential as well as a strong and advanced export infrastructure,” Novak said and, importantly, noted that development of the Northern Sea Route will help make LNG deliveries faster and cheaper.

Russia is already Europe’s second-largest supplier of LNG, after world leader Qatar. Last year, it exported 16 million tons of the super-chilled gas to Europe, up from just 7 million tons in 2018. The United States, in comparison, exported 12 million tons of LNG to Europe.

“Russian LNG cost into Europe is some of the cheapest LNG in the world. It can get into Europe for under $2/mn Btu,” a senior LNG analyst from S&P Global Platts told Petroleum Economist in February this year. “Because of this price incentive, Russia became the second-largest supplier of LNG in Europe last year, beating Nigeria and pushing out other key suppliers including Algeria.”

With the Northern Sea Route operating for longer periods every year, prices could fall even further, making it harder for competitors, notably U.S. LNG producers, to get a firm footing in Europe. Yet Asia is also a case in point—it is home to the world’s largest importers of the commodity, including South Korea, China, and Japan. Price would be a top priority for them, too, especially after the damage done to their economies by the pandemic. And on price, it seems Russia is beating most of the competition, thanks in no small part to the changing climate.

By Irina Slav for Oilprice.com

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Are LNG Prices About To Head Higher?

By Irina Slav - Oct 13, 2020, 3:00 PM CDT

https://oilprice.com/Energy/Natural-Gas/Are-LNG-Prices-About-To-Head-Higher.html

Weather forecasters are predicting a harsh winter for Asia, and while this would hardly be good news for anyone in the region, it happens to be great news for LNG exporters. 

Producers of liquefied natural gas were hammered no less mercilessly by the coronavirus pandemic than their oil-producing peers. On top of that, the LNG market was already oversupplied—just like the oil market—when the coronavirus began its global march. As a result, prices for the so-called bridge fuel slumped to about $2 per million British thermal units, making a lot of LNG non-competitive and leading to delays in several final investment decisions in the United States.

While the FIDs are unlikely to be revisited anytime soon, spot prices are improving. The Nikkei Asian Review reported last week the price for LNG had hit $5.20 per mmBtu, which was nearly triply the price of the commodity this spring when the glut and the pandemic combined to drive it down. It is still short of the average of $6 per mmBtu, at which LNG traded a year ago, the daily noted.

This week, Reuters’ Clyde Russell reported that spot LNG cargos to be delivered to Northeastern Asia next month averaged $5.50 per mmBtu. This is the highest price for the commodity so far this year, supported by worries about supply disruptions along the U.S. Gulf Coast because of the heavy hurricane season. But the main factor is the weather. Forecasters in Japan have said there is an excellent chance of La Nina developing, which would bring colder temperatures, hence greater demand for heating. As a result, Russell notes, LNG cargos for December delivery in Northeastern Asia trade at a $0.20 premium to the cargos for November delivery.

LNG demand normally improves during the winter in the northern hemisphere, but mild winters have played a bad joke on producers before. For now, all looks set for a little bit of ordinary amid the whole pandemic havoc, with Japanese forecasters saying the likelihood of a La Nina was 90 percent.

“We expect LNG demand to increase by four billion cubic meters this winter and that’s led by growth in China, Japan and South Asia,” said analysts from Refinitiv, as quoted by Gasworld, earlier this month. “LNG supply is expected to grow by three billion cub meters, led by the US. And when we put together demand and supply forecast, we expect the LNG market to be slightly tighter than last winter by one billion cubic meters.”

This would be more much needed good news for LNG producers. In support of this demand and supply forecast, the latest import data from China is also positive, with LNG imports going up to 5.96 million tons in August, from 5.19 million tons a year ago, Argus Media reported in late September. Industrial activity in China is improving, and rising LNG imports are one of the indicators.

Imports are rising regionally, too, according to Refinitiv data cited by Reuters’ Russell in his commentary. The data showed that September deliveries of liquefied natural gas to the continent stood at 20.68 million tons. That’s up from 19.86 million tons in the previous month and 19.44 million tons a year earlier. China’s LNG intake fell in September, but Japan’s rose.

Against this background, Europe’s lackluster demand for LNG could be overlooked for the time being. As long as weather forecasts are accurate, LNG is in for further price rallies. If the forecast weather trends do not pan out, however, there’s a substantial downside potential for prices. Luckily for LNG producers, Asia is faring better overall in its fight with the coronavirus, so the risk of new lockdowns, which could affect prices negatively, is smaller than it is in Europe, where the new lockdowns are already being scheduled.

By Irina Slav for Oilprice.com