Covid-19 'Bad for Gas Demand': Ratings Agency

Natural gas will be the hardest hit of all fuels as the Covid-19 pandemic hits energy demand over the next 20 years, according to ratings agency S&P Global Ratings (SPGR).

It is not a question of availability or price, but demand, it said in a September 25 report. "The problem with being a transition fuel is that when events such as the Covid-19 pandemic dent demand growth, the length and breadth of the transition are shortened. This situation manifests itself in ways that are unique to the circumstances of particular regions across the world."

Alternative investments in renewables, hydrogen, and storage are competing for the attention of capital. And environmental, social, and governance issues add another layer of complexity and will shrink the pool of available capital, SPGR said.

Gas will be to some extent squeezed out by lingering coal supply and growing renewables, but SPGR does not expect demand to peak over the next 10-20 years globally, owing to industrial demand rather than power generation. China, India, and the Middle East will account for 61% of growth over the next decade.

Gas demand growth has however "probably peaked in the US power generation sector, as utilities' strategies shift to renewables and retail integration. Smaller US independent gas producers face the greatest credit impact, as the pandemic exacerbates preexisting pressure on their profitability, credit metrics, liquidity, and refinancing ability.

In Europe, the Green Deal is unlikely to support gas in the long term, even if gas remains an important part of the energy mix owing to the phase-out of coal and nuclear power, the agency continued. "Uncertainty about the future role of gas is beginning to weigh on gas utilities' regulatory returns," SPGR said.

And large gas producers in Europe are focusing increasingly on decarbonisation and green energy, or diversifying into growing markets in Asia, it said – the same day that French major Total announced a major investment in Spanish solar.