Global consumption of natural gas will drop this year by the most in history, according to the International Energy Agency, as measures to contain the spread of coronavirus lead to an unprecedented shock to demand.

The Paris-based IEA said on Wednesday that the effects of the pandemic, combined with a mild winter in the northern hemisphere, will cause global natural gas consumption to drop 4 per cent in 2020, or 150bn cubic metres, with the impact spanning every region in the world. Such a fall would be twice as severe as that registered after the global financial crisis in 2009, when demand fell 2 per cent.

Although the natural gas sector has experienced a smaller hit from government-imposed lockdowns than oil and coal, which are used more widely in transport and for commercial power generation, the dip shows the market “is far from immune” from the pandemic, said Fatih Birol, head of the IEA.

The natural gas sector has benefited in recent years from a switch from coal to gas across lots of industries, as low prices and clean air policies drive fuel conversion, particularly in China. 

In 2019 demand grew 1.8 per cent year-over-year or 70 bcm. 

“The record decline this year represents a dramatic change of circumstances for an industry that had become used to strong increases in demand,” said Mr Birol.

While gas is a cleaner alternative to coal, it too is coming under growing scrutiny from environmental activists and some investors who want to divert funds away from all fossil fuels.

Still, many of the biggest players in the energy sector and major governments see gas as necessary for meeting global energy demand. 

Several years of strong gains in consumption have prompted huge levels of investment in liquefied natural gas. A record $65bn of capital spending was committed to LNG liquefaction facilities in 2019, according to the IEA.

This year, however, gas used for power generation will take the biggest consumption hit, making up half of the total decline in demand. Gas-fired generation will see a particular heavy fall in Europe, according to the IEA, as lower electricity demand coincides with growing use of renewables for power. 

After power generation the next largest drop in demand is expected to come from the residential and commercial sectors. The milder winter reduced heating needs at the start of the year while government lockdowns cut consumption by businesses.

Industrial gas demand also fell as virus-hit economies stalled and manufacturing slowed, while the energy industry itself saw a dramatic slide in fuel consumption.

The gas industry is expected to recover gradually over the next two years. But the coronavirus crisis will have a “lasting impact”, Mr Birol said, as surplus supply and investment in new capacity continues to overwhelm demand.

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