BAKU, Azerbaijan, March 19
By Leman Zeynalova – Trend:
Gas demand in Europe is projected to increase by 2 percent in 2021, though not to reach pre-pandemic levels, Trend reports with reference to the International Energy Agency (IEA).
“Forecast for a return to average heating requirements through the winter season and a gradual recovery of industrial and commercial activity drive the expected uptick in gas demand. Gas-fired power generation in Europe is projected to decline by 1 percent in 2021. Electricity demand is expected to increase and to be met by a 5 percent increase in nuclear generation and a 4 percent boost in output from renewables.This implies that the portion of the generation mix from fossil fuel sources (gas, coal, lignite) is projected to shrink by 1 percent. A projected sharp recovery in gas prices, increasing by twofold y-o-y (per forward curves at the beginning of 2021) would diminish the competitive advantage of gas-fired power plants vis-à-vis coal-fired generation,” reads the latest IEA report.
Gas demand in Europe proved to be rather resilient in the wake of the unprecedented macroeconomic shock related to the Covid-induced lockdowns.
Estimates suggest that gas demand in Europe fell by close to 3 percent in 2020. Gas markets in Europe faced a perfect storm through the first-half of 2020 with gas consumption plummeting by over 7 percent y-o-y, due to a combination of mild winter temperatures in Q1 and pandemic-related lockdowns through Q2.
European gas demand started to recover in June and rose by 2 percent y-o-y in Q3 driven by increased coal-to-gas switching in the power sector. European gas consumption rose by an estimated 3 percent y-o-y in Q4 2020 despite restrictive measures imposed amid another wave of the pandemic.
Several factors explain the resilience of natural gas demand and why it was not impacted similarly as during the lockdowns in Q2:
The confinement measures imposed across Europe in Q4 were less restrictive and disruptive for economic and industrial activities;
Companies were able to adapt more quickly and smoothly to the (re)- introduction of regulatory measures related to social distancing and teleworking;
The bulk of natural gas is consumed during Q4 for space heating in the residential and commercial sector is typically more sensitive to weather conditions and depends less on economic activity.
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