The COVID19 pandemic has led to lockdowns across the globe and severe downgrades for short-term macroeconomic indicators. A major re-evaluation is needed for the supply and demand of each traded commodity and LNG is no exception.
It is clear that natural gas demand will be negatively affected, overall. But IHS Markit expects LNG demand to show impressive resilience. IHS Markit has downgraded our estimate for total LNG demand in 2020 by 14.4 MMt—or 3.8 percent relative to our ‘pre-COVID outlook. Nevertheless, IHS Markit expects LNG demand to still register a slight annual increase with 2020 volumes projected to be up 4.4MMt year-on-year. LNG demand has risen each year since 2012.
It is pipeline gas more than LNG that feels the full brunt of reductions in gas demand. 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 4% 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.