LNG demand shows impressive resilience in face of COVID-19

lngLNG demand is expected to show impressive resilience in the face of COVID-19 pandemic, according to a forecast by IHS Markit

IHS Markit expects total LNG demand in 2020 to fall by 14.4 million tonnes, or 3.8 per cent from its ‘pre-COVID outlook. Nevertheless, IHS Markit expects LNG demand to still register a slight annual increase with 2020 volumes projected to be up 4.4 million tonnes y-o-y.

It is pipeline gas more than LNG that feels the full brunt of reductions in gas demand, his stated, adding the price of pipeline gas is often less directly linked to oil price movements than LNG because of time lags and other formula in long-term contracts.

IHS Markit projects that overall gas demand in the main LNG importing markets will decline four per cent relative to 2019. However, approximately two-thirds of the demand reduction is expected to come from reduced pipeline supplies (primarily in Europe). Another one third is expected to come from reductions in indigenous production.

Michael Stoppard, chief strategist, global gas, IHS Markit, said, “LNG is often the lower-priced option thanks to a strong supply push. Major pipeline suppliers, such as Russia to Europe, are choosing not to flood the market any further. It all adds up to LNG being relatively resilient in the face of gas demand declines.”

Europe sits at the intersection of a strong global LNG supply push and a local gas demand collapse. Gas demand has been revised down from 550 to 497 bcm for 2020. However, IHS Markit continues to project rising and record levels of LNG imports in 2020.

Mainland China’s gas demand for 2020 has been downgraded from 327 bcm to 312 bcm. Despite weak oil prices, gas pipeline contracts from Central Asia are expected to be the most expensive source once delivered to demand centres on the Chinese coast and are expected to take the biggest hit.

Russian pipeline supplies from the north through the Power of Siberia pipeline can supply the northeast more competitively and are still expected to ramp up as planned. Space remains for LNG imports to increase 2.5 million tonnes in 2020, according to the analyst.

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