IEA (2021), Global Energy Review 2021, IEA, Paris https://www.iea.org/reports/global-energy-review-2021, Licence: CC BY 4.0
Natural gas demand declined less than other fossil fuels in 2020
Global natural gas consumption declined by 75 bcm (or 1.9% y-o-y) in 2020. This represents the largest recorded drop in gas demand in absolute terms, but it would be on a par with 2009 in relative terms. The decline was concentrated in the first half of the year, when global gas consumption declined around 4% y-on-y, driven by exceptionally mild weather and Covid‑19 outbreaks. Gas was markedly less impacted than oil or coal demand in 2020, and a progressive recovery of gas demand was observed in the third quarter as lockdown measures eased, while seasonal electricity demand and competitive prices pushed up gas consumption.
This relative resilience can be partly explained by fuel switching in electricity generation. The switch was particularly remarkable in the United States where gas demand for electricity generation increased by around 2% y-o-y in spite of a declining electricity demand, while in Europe gas-fired generation benefited from low prices and a sharp recovery in carbon prices in the second half of 2020. In Asia, gas for power grew in China, India, and Korea. With gas With big declines in Russia and the Middle East, gas use in the power sector proving resilient nonetheless accounted for one-quarter of the decline in gas demand in 2020, the biggestother declines came from the buildings and industry sectors, contributing respectively to 30% and close to 20% of total gas demand drop in 2020.
Gas bouncing back in 2021, but recovery remains fragile
Global gas demand is expected to recover 3.2% in 2021, erasing the losses in 2020, and pushing demand 1.3% above 2019 levels. This recovery in gas demand has been driven mainly by fast-growing markets – primarily in Asia and, to a lesser extent, the Middle East – and subject to uncertainties regarding industrial rebound or fuel price competitiveness. Demand in the European Union is expected to rebound to levels on a par with 2019. Growth in the United States is more gradual, with demand not expected to return to 2019 levels in 2021. Colder than average temperatures in the early months of 2021 across the northern hemisphere increased gas demand. Winter storms also led to some extreme supply-demand tensions and price spikes, first in January in northeast Asia and then February in North America, notably in Texas. Rising prices have challenged the position of gas in electricity generation as seen in the United States where demand in the first quarter of 2021 was lower than the first quarter of 2020. Across the year, higher gas prices are expected to keep gas demand in the United States close to 2020 levels and around 2% below 2019 levels. In the European Union, higher carbon prices provide some support to gas vis-à-vis coal; preliminary data for the first quarter show an 8% y-o-y increase in gas demand in Europe. The picture is very different across developing Asia, where demand in 2021 is expected to increase by 7% on 2020 levels, putting demand 8.5% above 2019 levels. China leads the increase, with 2021 demand more than 14% (or 44 bcm) higher than 2019 levels.
The industry sector and buildings sectors are is expected to lead gas demand growth in 2021, with industry demand increasing by almost 5% as global output and trade volumes recover. China, India and other fast-growing Asian markets are driving this growth. Consumption from the buildings sector grows around 5%, supported by colder temperatures in Q1. Gas use for electricity generation is expected to grow just 1% due to low electricity demand growth, increasing renewable capacity, and tougher price competition from coal. Consumption from the buildings sector grows around 5%, supported by colder temperatures in Q1.
Global gas demand in 2021 remains subject to significant uncertainty regarding not only electricity demand and industrial production but also the price evolution of gas vs. coal in key markets such as the United States, as well as in regard to the weather across the northern hemisphere towards the end of 2021.