The LNG industry faces its first seasonal demand contraction since 2012 as lockdown measures and a negative economic outlook takes its toll on Asian importers.

Wood Mackenzie says global LNG demand in the summer of 2020 is expected to fall 2.7 per cent, or 3 million tonnes (Mt), year-on-year.

LNG demand in Japan, the world’s largest importer, declined in the first quarter of the year and continued to fall through April as school closures, strict social distancing, work from home guidance, and partial sectorial shutdowns dampened LNG demand.

Japan’s Q2 2020 LNG demand is expected to fall 3 per cent to 15.8 Mt compared to Q2 2019.

Indian LNG demand is also expected to fall in the second quarter by 24 per cent to 4Mt as three months of lockdown reverses the 19 per cent year-on-year increase in the first quarter.

The outlier is China, which is expected to see its Q2 LNG consumption rise 12 per cent to 15Mt year-on-year due to its ongoing  switch from coal to gas.

However, any moderation in this switch could reduce gas demand during the heating season.

European gas demand is also expected to show limited declines due to the smaller share of gas used in the industrial sector  and the resilience of gas burn in the power sector.

Additionally, while its total demand is down, reductions in domestically produced gas and Russian pipeline imports have created more room for LNG to be absorbed.

READ: European gas prices could take a turn into negative territory

Wood Mackenzie research director Robert Sims says the COVID-19 outbreak will drive a global contraction in LNG deliveries through summer 2020, the first seasonal contraction in eight years.

“The coming winter season (2020-21) could see a modest 5 Mt improvement in global LNG demand compared to the previous winter season,” he noted.

“Pricing dynamics between both seasons are also likely to be similar, with the cross-basin spread set by the economics of US LNG. There could be some downside risk to Asian prices this winter if buyers lift some of the deferred volumes from this summer.

“In general, a return to stronger growth is not expected until mid-2021.”

He added that some degree of under-utilisation of US terminals is now expected to happen through the summer of 2021 though any robust rebound in LNG demand from Japan, Korea or India could begin the price correction earlier than expected and reduce the risk of further US supply reductions next year.

Australian LNG exports have held up surprisingly well so far with EnergyQuest noting that local projects exported 6.9Mt of LNG in April, a marginal increase from 6.8Mt in March.