Gas Line, Q2 2020

July 1, 2020

Gas Line is a quarterly publication that looks at major news stories in global gas—ranging from project development to markets and geopolitics. My goal is not to cover every story but to draw connections between stories across time and space in order to shed light on the major themes that will drive global gas markets in the years ahead. My main takeaways from this quarter:

Another Look at Gas in 2019

The bottom line: New data paint a clearer picture for gas in 2019, showing that (a) gas demand grew by a healthy amount in 2019, increasing the market share of gas in the global energy mix; (b) demand growth still relies on the United States and China, although a few other countries registered sizable increases too; and (c) even though spot prices were low, around 40 percent of the net increase in global supply ended up in storage, with Europe playing a critical role in balancing the market, taking in excess supply not to consume the gas but to store it.

The backstory: Gas demand rose by 2 percent in 2019, according to the BP Statistical Review of World Energy, faster than energy demand in general (1.3 percent). As a result, gas gained market share in the global energy mix and reached its highest point ever (at 24.2 percent of primary energy). Regionally, the demand story was familiar, with growth coming from the Asia Pacific and North America, followed by the Middle East. In fact, the United States and China accounted for two-thirds of the growth in gas demand in 2019, similar to their contribution in 2018 (at 63 percent). The market continues to depend on the appetite of these two countries.

Yet further down the list of countries that contributed to gas demand growth are a few surprises. Australia had the third largest increase, in volume terms, and then came Bangladesh and Iraq, the last two enabled by imports. These three countries increased their consumption as much as China did, which is significant given their size. On the other side of the spectrum were several countries where demand fell in 2019—Russia, Japan, Venezuela, Turkey, Ukraine, South Korea, and Argentina all saw gas demand decrease—collectively, their demand fell by 33 billion cubic meters, or bcm (in China, by comparison, gas demand rose by 24 bcm).

The data for liquefied natural gas (LNG) show another angle. There was a big increase in supply as new projects came online, but most of that new LNG ended up in Europe rather than in the emerging markets that analysts often see as driving growth in demand. In Asia, there was a small net increase with gains in China, Bangladesh, India, Malaysia, and Pakistan offset partly by declines in Japan and South Korea. In Europe, the increase in demand was less than the increase in stocks—in fact, the International Energy Agency estimates that roughly 40 percent of the net increase in gas supply in 2019, after accounting for a decline in production, ended up in storage, much of it in Europe. In other regions, LNG imports fell modestly (in aggregate).

Market Continues to Adjust to Covid-19

The bottom line: The Covid-19 crisis has amplified a supply-demand imbalance that has led to record-low prices, a buildup in stocks, and, now, supply curtailments, especially in the United States but not only there. Companies have continued to postpone investments in new projects; there have been a few major force majeure invocations, although some projects were also given the green light during the quarter, especially projects to import LNG.

The backstory: Hub prices in both Europe and Asia have continued to fall this year: the Title Transfer Facility (TTF) in the Netherlands bottomed out in early June, down 63 percent from early January, while the Japan Korea Marker (JKM) continued a steady slide, despite occasional blips (down around 50 percent since the start of the year). Meanwhile, Henry Hub in the United States reached a 25-year low as supply exceeded demand, and stocks trended toward the five-year average. In Europe, the buildup in stocks has continued, although injections have slowed recently.

Supply has responded to these price signals. Gas into LNG terminals in the United States has halved relative to earlier this year as buyers have canceled cargo deliveries. By and large, the United States has led the adjustment in global LNG supply, although other exporters have cut LNG production as well (but not Qatar, Australia, or Russia). In Europe, pipeline exports from Russia declined by over 23 percent in Q1 with similar numbers seen in April and May. Norway’s exports have also fallen—by over 7 percent in the first months of the year (the declines were 10 and 14 percent in April and May, respectively).

This bearishness weighed on new projects. Several companies announced that they were now targeting a final investment decision in 2021 rather than 2020 (for example, Driftwood, Freeport, Rio Grande, and Port Arthur). Other exporters experienced the stress of the crisis through a force majeure invocation (Tango in Argentina, Tortue in Mauritania and Senegal, and YPFB in Bolivia for its exports to Brazil), whereas Papua New Guinea secured a loan from the International Monetary Fund while continuing to drive a hard bargain for the proposed LNG expansion under negotiation.

Yet other developments pressed ahead: Shell announced a major investment in Australia; Qatar placed a big order for LNG vessels in Korea, evidence that it continues to progress its expansion plans; and Nigeria signed an agreement with an engineering, procurement, and construction contractor for its expansion at Nigeria LNG. In Mozambique, the government reportedly offered a state guarantee to secure financing for the LNG project under construction. And Alaska LNG reached a major milestone, securing an authorization from the Federal Energy Regulatory Commission while also announcing a $5 billion reduction in its estimated cost.

On the import side, Myanmar imported its first LNG cargo in May. In Brazil, a floating storage and regasification unit (FSRU) arrived in Port Açu, boosting that country’s import capacity. Poland struck an agreement to expand its LNG import terminal while making further progress on the Baltic pipe project to bring gas from Norway, awarding one of the pipeline contracts to Corinth Pipeworks. In Cyprus, the country gave a notice to proceed to a consortium developing an import terminal while also securing financing for the project from the European Investment Bank. In Germany, a long-anticipated project at Wilhelmshaven got a boost when the project partners signed an agreement to construct an FSRU, although a final investment decision is still pending. And Croatia announced that most of the capacity at its Krk facility had been booked.

Europe’s Green Deal Struggles with Gas

The bottom line: The European Green Deal has always had an uneasy relationship with gas, clear that by 2050 gas should be phased out but unclear about what happens to gas from now until then. (It is also unclear how this long-term mandate squares with the idea that each country is free to choose its own fuel mix.) As the European response to Covid-19 takes shape, disagreements over the role of gas have emerged more forcefully and will continue to intensify.

The backstory: In late May, eight countries submitted a paper to defend the role of gas in a “climate-neutral Europe.” The document is very interesting because it contains, in just two pages, all the problems and contradictions that gas faces in the Green Deal. The document alternates between gas as a transition fuel and a balancer to intermittent renewables, gas as a heating fuel but also an industrial fuel and a generator of power, gas as a way to reduce local air pollutants even if not carbon dioxide, fossil gas but also gas from renewable sources, and gas versus electricity in those applications where the two will square off.

The cynical read of such a document is that Europe is gearing up to spend a lot of money to support the Green Deal, and countries want to make sure that they can access as much of that pot as possible, especially after the European Investment Bank shunned gas late last year. If gas is excluded from the so-called “sustainable taxonomy,” then those countries that still want to invest in gas will lose out. But a more charitable read is that Europe has, for years, given mixed signals on gas—wanting diversification of supply, for example, but also decarbonization, in effect asking companies to invest in infrastructure while pledging to make that infrastructure obsolete. In that reading, the challenges that gas faces in the Green Deal are familiar and long recognized.

The more difficult question, however, affects gas grids: the eight countries that tried to defend gas rightly pointed out that if gas grids are to serve a different carrier, say biomethane or hydrogen, those gas grids must be in good order, and for that they need investment. And so Europe faces a choice: if it turns away from supporting any investment in gas infrastructure, it risks losing an asset that can deliver climate-friendly energy sources. On the other hand, a steady investment in gas will make a shift away from gas harder as consumers will need extra nudging to shift, and assets with useful remaining lives will demand compensation if they are to be phased out. We are just seeing the initial tensions in a debate that is unlikely to end soon.

Some Further Reading

• BP, “Statistical Review of World Energy,” June 2020.


• GIIGNL, “Annual Report 2020,” April 2020.


• International Energy Agency, “Gas 2020,” June 2020.


• Robin Mills, “Under a Cloud: The Future of Middle East Gas Demand,” Columbia Center on Global Energy Policy, April 29, 2020.


• Vincent Demoury, “LNG carbon offsetting: fleeting trend or sustainable practice?,” GIIGNL LNG Insight, June 18, 2020.


• “Insight Conversation: Saad al-Kaabi, minister of state for energy affairs, Qatar,” S&P Global Platts, May 1, 2020.


• Ira Joseph, “Bland LNG contracts need a bit of seasoning,” S&P Global Platts, June 23, 2020.

Nikos Tsafos is a senior fellow with the Energy and National Security Program at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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