IEF warns of near-term gas market 'turbulence' on slow supply recovery

London — Natural gas supply will not recover as quickly as demand following COVID-19, which could lead to near-term "market turbulence", the new head of the International Energy Forum said Sept. 8.

IEF secretary general Joseph McMonigle, who took on the role in July, said in a keynote address at the Gastech Virtual Summit that global gas demand was set for a strong rebound, while supply could be slower to recover.

"Demand is projected to decline by around 3% in 2020 but is on track to make a robust recovery," McMonigle said.

"Gas supply will not recover as fast as demand. This has already caused regional gas benchmarks to rise and may further cause market turbulence over the coming months," he said.

In the US, he said, recovery from cutbacks and gas production and investment may be less resilient than observed during the last downturn.

"While major players seize the opportunity to move forward by investing in new conventional gas resources to retake market share, much of the flexibility on which the gas market trade has come to rely maybe lost at least over the next year," McMonigle said.

He said a focus on collaboration between producers and consumers was "timely and critical to accelerating the gas market recovery."

The Riyadh-based IEF aims to foster greater collaboration among its members, which comprise not only consuming and producing countries of the International Energy Agency and OPEC, but also transit states and major players outside of those two groups.

"Strengthening collaboration between producers and consumers will help all stakeholders seize the opportunities that affordable, readily accessible, and clean gas technologies offer for swift and sustainable economic recovery," McMonigle said.

Changing strategies

Both producers and consumers would adjust strategies to absorb COVID-19 impacts and overcome the crisis, he said.

"In response to the slowdown of international gas trade and the downward convergence among regional gas price markers, exporters will add flexibility to long term contracts to improve their competitive edge while importers will increase their positions in growth economies."

"Both stand to benefit from the windfall created by greater commoditization of gas markets, accelerated transitions from coal to gas, and deeper integration of renewables."

McMonigle said the coronavirus pandemic "increases the stakes" by pushing the demand gap out further over the next decade.

"This opens a new window of opportunity that enables the gas industry to play a larger role in achieving climate, clean air, and energy access goals, alleviate security of supply concerns among major gas-consuming countries, facilitate market access for producers and consumers and resolve geopolitical concerns and explore new business models and technologies," he said.

"The constraints that the pandemic imposes on budgets and balance sheets heightens the importance of collaboration between producers and consumers. Specifically, there is a need for them to work together to promote inclusive energy transitions and a post-pandemic recovery."

McMonigle said that despite the elevated levels of uncertainty regarding gas investments and the commissioning delays that the pandemic has caused, gas market fundamentals "remain strong".

LNG demand in South and Southeast Asia could quadruple over the longer-term, with India and Thailand taking the lead as the biggest growth markets, he said.