Europe
GAS
Deflated gas market Dr Anouk HonorÊ, Senior Research Fellow, The Oxford Institute for Energy Studies (OIES), looks at the impact of COVID-19 on Europe’s gas sector.
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COVID-19 hit an already weak European gas market and the future remains uncertain, depending on the speed and scale of economic recovery Photo: Shutterstock
n 13 March 2020, the World Health Organization (WHO) declared Europe to be the epicentre of the new coronavirus epidemic. Across the region, countries were closing their borders and introducing increasingly strict restrictions on movement to stop the virus spreading. Italy was the first in the world to issue a nationwide lockdown on 11 March, but within a week or two, many other European countries had taken similar decisions. Containment policies have been almost exclusively national and not uniform across Europe, with various degrees of restriction, geographical coverage and starting dates. These measures largely halted economic activity, with social distancing encouraged, public events banned, schools closed and most non-essential retail and manufacturing activities shut down or ordered to operate at minimum levels for several weeks. The most drastic measures were taken in Italy, France and Spain. But despite the differences in response to the virus, the measures have come at huge economic and social cost to all countries.
Weak demand Gas demand in Europe was already weak even before the COVID-19 pandemic reached its full extent.
30 Petroleum Review | October 2020
Winter 2019–2020 was mild, wet and windy, a combination of factors not favourable to high gas demand in the region. Warm temperatures seen in January, especially in north-west Europe, limited the need for gas used for heating in buildings as well as heating-related electricity consumption. Strong winds in February further limited the potential for gas used in power generation. As a result, gas demand was down both in January and in February year-on-year. The effect on gas demand of reduced activity or even temporary closure of power-intensive manufacturing and retail shops, restaurants/cafes and offices started to be seen from the second half of March in the industrial and power generation sectors in most countries, but at varying degrees depending on the severity of early lockdown measures. Total gas demand in March was still above 2019 levels due to below average temperatures in western countries in the second half of the month. With more people staying at home, cooler weather is thought to have had a stronger impact on gas use than usual. In both April and May, total gas demand in Europe was down by 16% year-on-year despite the very careful relaxation of restrictions which started in mid-April in
various countries as the spread of new COVID-19 infections started to slow down across Europe. A gradual reopening of the economies started in May, but precautionary measures such as social distancing remained (and are likely to continue for several months). Manufacturing output rose by about 12% on a monthly basis, but remained considerably lower than in 2019. The impact on gas-based power generation varied widely across Europe, but as a result of relatively high carbon prices, most of the least efficient coal plants were priced out of the mix and in countries where some coal-to-gas switching was still possible, such as in Germany or even in Poland for instance, gas-based generation showed good resilience because of the low gas prices. June was the first full month outside of confinement in many countries. The heaviest restrictions were lifted and more global supply chains were restored. Industrial output grew by 9% from May, although with big variations by countries and by sectors as government measures to curb the pandemic affected some more than others and was still about 12% down year-on-year. Lower renewables led to strong growth in gas-fired generation (about a third higher than in May) and preliminary data show that total gas demand was only about 2% below 2019 levels. In July, demand in gas-intensive industry continued to improve, hot temperatures increased demand for air conditioning, especially in southern Europe, and some additional coalto-gas switching (when possible) boosted power sector gas burn, in particular in Germany. All in all, in the first seven months of 2020, gas demand in Europe is likely to have declined by about 7%, or 20bn cm year-on-year due to the successive impacts of mild temperatures, high renewables in power generation (with hydro and wind as the main contributors) and the consequences of COVID-19. The road ahead What can be expected for the rest of the year? While policies are likely to take the lead as the main driver of future gas demand in Europe in the 2020s and beyond, in the short term, much will depend on the speed of economic recovery, the level of power demand and the available generation mix and finally, temperatures over the winter.
