Trading Outlook of Natural Gas as Temperatures Change

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Global Natural Gas Outlook

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World Energy Outlook 2020

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IEA (2020), “World Energy Outlook 2020”, IEA, Paris https://www.iea.org/reports/world-energy-outlook-2020

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Introduction

Natural gas had a remarkable year in 2020, with a 4.6% increase in consumption accounting for nearly half of the increase in global energy demand. We asked in 2020 whether the world might be poised to enter a “Golden Age of Gas”, and now it appears that global gas consumption is very close to those 2020 projections. Since 2020, 80% of growth has been concentrated in three key regions: the United States, where the shale gas revolution is in full swing; China, where economic expansion and air quality concerns have underpinned rapid growth; and the Middle East, where gas is a gateway to economic diversification from oil. Liquefied natural gas (LNG) is the key to more broad-based growth in future; 2020 is already a record year for investment in new LNG supply, even as prices in key importing regions have fallen to record lows.

Natural gas continues to outperform coal or oil in both the Stated Policies Scenario (where gas demand grows by over a third) and the Sustainable Development Scenario (where gas demand grows modestly to 2030 before reverting to present levels by 2040). However, the gas industry faces some commercial and environmental challenges as well as some major variations in the storyline in different parts of the world.

Natural gas had a remarkable year in 2020, with a 4.6% increase in consumption

Outlook by scenario

Gas production by region and scenario, 2020-2040

Gas demand by region and scenario, 2020-2040

In the Stated Policies Scenario, overall global gas demand in 2040 is broadly similar to what we projected in WEO 2020, as a slight upward revision to the use of gas in industry compensates for a downward adjustment to gas consumption for power generation. Demand in the United States has edged higher, but this is offset by a sharper decline in the European Union, as well as by slightly slower projected growth in China. Production growth is dominated by shale gas, which grows at a rate of almost 4% each year, four-times faster than conventional gas.

In the Sustainable Development Scenario, natural gas consumption increases over the next decade at an annual average rate of 0.9% before reaching a high point by the end of the 2020s. After this, accelerated deployment of renewables and energy efficiency measures, together with a pickup in production of biomethane and later of hydrogen, begins to reduce consumption.

By 2040, natural gas demand in advanced economies is lower than current levels in all sectors apart from transport, where demand remains broadly similar to the level reached in the Stated Policies Scenario. In developing economies, gas growth in the power sector rises to 2030 but falls back due to a growing share of renewables, while growth in industrial demand is half the level of the Stated Policies Scenario. Although absolute consumption falls, natural gas gains market share at the expense of both coal and oil in sectors that are difficult to decarbonise, such as heavy-duty transport and the use of heat in industry. Even though natural gas-fired power generation declines, capacity grows compared with today as a consequence of the role of gas in providing power system flexibility.

Natural Gas Outlook 2020

Today we are going to talk about one of the most fast changing markets in 2020, the one of natural gas, a commodity that has played a fundamental role in the global economy over the last year.

In the first place it is appropriate to talk about how the industry in the US has shifted from coal to natural gas in the past year. While in 2020 we had an energy production market clearly dominated by coal, accounting for around the 44% of the total against 22% for gas, the situation in April 2020 showed that gas had already surpassed the coal by 1% of the share (31-30% for gas and coal, respectively).

Natural gas outlook 2020: Factors that affected natural gas prices

We need to look for the causes of this change, on one hand, on the creation of different new laws that favor a cleaner and more environmentally friendly production of energy; and on the other, on the low natural gas prices motivated by the rise in production of this commodity.

However, not the entire globe has experienced the same trend. In fact, the International Energy Agency (IEA), in its 2020 Medium-Term Gas Market Report, has predicted an increase in global demand for natural gas of around 2%, which is actually inferior to the 2.3% expected according to the analysis performed in 2020 by the same organization. This reduction is caused by an initial overestimation of the Asian demand in the previous year.

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While for the US, as previously said, the coal is being abandoned for more eco-friendly substitutes and its market share is substituted by gas, the giant Asian market with China on the lead (the main importer and consumer of coal) is not able to adapt quickly enough to the drop of the natural gas prices. Asian countries lack a proper infrastructure for gas usage, and long term investments to profit from it are less attractive than the ones that can be put into renewable energies. In the short term, the energy demand that gas could cover is being taken away by the important and sharp price fall of oil.

We can conclude this global natural gas outlook 2020 with information about the last big consumer of gas, Europe. In this case, the main supply of foreign gas is Russian Federation through Gazprom. However, the free market with the lowering of prices is attracting other players, as is the US. Some people thought that the sanctions imposed against Russia because of the conflict in Ukraine were due to the intentions of the US to defy the domination of Russian gas in Europe. However, the only way that the US can send gas produced on American soil to Europe is through LNG (Liquefied Natural Gas) tankers. Some ports are being built, but the priority for Americans is not Europe, but other countries less developed countries as India and Japan. In any case, the share of the Russians in the European market will decrease, at least slightly, in favor of the US. This may cause a slight negative change in the natural gas price, if the sanctions against Russian Federation are not lifted.

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