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China’s gas demand notches up as Covid-19 lookdown gets loosened

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As China strives to rekindle its economy, after strict lockdowns in January and February to contain the coronavirus, energy demand…

Daily tariff indicators suggest transport and logistics constraints are being lifted quickly. With a resumption in economic activity, Wood Mackenzie estimates a full-year gas demand reduction of between 6 billion cubic metres (bcm) and 14 bcm in 2020, translating to a 4% to 6% growth in gas demand this year.

China’s LNG demand is expected to reach 65 million tons this year, representing a 6.6% growth year-on-year. In fact, the first U.S. LNG cargo in more than a year is on route from

Europe braces for economic impact

With China hoping to have passed the pandemic, Europe is still fighting to contain the outbreak and braces for the economic impact of wide-spread lockdowns which severely impact on energy demand. At the same time, the energy demand destruction worldwide has caused record-low oil and gas prices which greatly supports gas-fired generation.

Worst-case scenarios could see more lockdowns deployed in more countries, including Sweden and the Netherlands which so far took a different route, risking severe disruptions to global supply chains by restricting movements of people and goods.

Low oil prices support coal-to-gas switching

Record low global oil prices, caused by Saudi Arabia flooding the market after a spat with Russia, are feeding through to oil-indexed LNG contracts in Japan and South Korea. Analyst suggest this could disrupt coal generation in favour of gas in both markets, as soon as August this year, similar to how sustained low TTF prices in 2019 removed coal from power grids across North West Europe.

“We expect Japan’s LNG demand to grow 5.1% to 81 Mt in 2020, compared to last year. At the same time, South Korea’s LNG demand is expected to rise 7.7% to 42 Mt, as more LNG displaces coal in the power sector of both countries,” said Wood Mackenzie research director Robert Sims.

Elsewhere, attention moves to potential loss of associated US gas supply, which could hurt U.S. LNG producers further, although the impact will likely be felt through 2021 due to the delayed nature of drilling reductions. “At a lower $35 per barrel oil price, we could expect about 2 billion cubic feet per day (bcf/d) of US gas production to be impacted by middle of next year,” Sims said.

U.S. production shut-ins on the cards

The fundamentals behind the global LNG oversupply remain: strong production growth, weak Northeast Asian demand with prices as low as $2.75/mmbtu and an increasingly saturated European gas market whereby TTF prices have sunk to $2.98/mmbtu.

Prospects of any quick recovery of Japan Korea Marker (JKM) or TTF prices have been dealt a blow due to the impending global economic downturn. So, supply cuts are the only option left to balance the market, notably a turn-down of US Gulf coast production. “We forecast 0.5 bcf/d of production will be lost through Q2-Q3,” Sims said but cautioned “there is risk that this number may prove too conservative if demand drops further.”


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