GIF Inside Story: Flatten the curve

Author: William Peck


LONDON (ICIS)--Natural gas demand has held steady week on week for several days in Germany, Britain, Italy and France, according to an ICIS model that controls for the demand impact of temperature in these countries.

This suggests demand in these markets has levelled out following a period of steady declines as governments imposed restrictions on people and businesses aimed at stopping the spread of the coronavirus.

France has been most impacted, where relatively high commercial demand has been disproportionately hit by the tight national lockdown. German gas demand has dropped the least due to less-stringent restrictions implemented by the government so far.


European energy markets have entered uncharted waters with closures, lockdowns and other restrictions aimed at slowing the spread of the coronavirus.

Electricity demand is falling as factories, businesses and public buildings close, and people remain confined to their homes.

This is feeding through to lower demand from gas-fired power plants, particularly since these tend to have higher marginal costs compared to other sources in the generation stack.

Electricity generation makes up a small share of overall gas demand though. The fuel’s greater prevalence as a source of residential heating could mean that demand is higher in a state of lockdown, with everybody running personal heating at home.

It is not as easy to identify a drop in total gas demand across Europe’s four largest countries in recent weeks as it is for electricity demand.

A key factor is fluctuations in temperature. The weather cooled in week 13 to reach well below the seasonal norm in some countries, increasing gas demand for residential heating and potentially disguising drops in sectors such as power, industry and commerce.

Energy demand also falls on weekends and public holidays, as some businesses and factories shut. It is even slightly lower as the clocks go forward, if reported as a daily total.

Energy traders are rapidly attempting to establish how much demand has already fallen in their markets directly as a result of the coronavirus and whether any fall may continue. They can then use this analysis to revise their expectations for the coming weeks and months in which public lockdowns are likely to remain in place.

The virus is unlikely to have a significant impact on gas or power supply. French power prices briefly spiked when several EDF nuclear plant employees tested positive, but this premium has since been sold out of the market several times over as significant capacity closures look unlikely. However, a number of North Sea operators have postponed gas infrastructure maintenance, with Britain’s INEOS delaying the shutdown of the Forties Pipeline System from June to August. Norway’s Equinor has also pushed back work on a number of key fields.


In order to establish how much gas demand has fallen in Europe’s largest markets, ICIS used multiple regression models to find the closest statistical fit between daily consumption and the temperature and day of the week in Italy, France, Germany and the UK.

ICIS collected data from between 24 February and 29 March to get a five-week sample between the years 2015-2019. Demand data was unavailable for the GASPOOL market area for 2015 or 2016, so ICIS dropped these years from the German analysis. British gas demand for power generation increased notably from 2016, due to government policy inducing a fuel switch away from coal to gas. ICIS dropped 2015 from the UK analysis as this improved the predictive power of the model.

Overall the regression models were highly statistically significant, explaining 63% of the variation in gas demand in Italy and 90-92% in the other countries.

• A 1°C drop in temperature effected a 10mcm rise in gas demand in Italy and France and 15mcm rises in Germany and the UK over the sample period, according to the models

• Demand dropped roughly 40mcm on weekends and public holidays in Italy, and 20-30mcm in the other countries


In order to measure the drop in demand caused by coronavirus shutdowns and restrictions, ICIS plugged data from this year into each country’s model, and compared the results to actual recorded gas demand over rolling seven-day periods.

Gas demand was roughly 5% higher than expected in Italy, France and Germany up to mid-March before any major shutdowns took hold. Higher industrial output as a result of prior positive news for global economies may have partially caused these rises, as well as switching to gas in the power sector. Gas-fired power margins are attractive due to cheap wholesale gas prices.

UK gas demand proceeded as expected over this period, due to a smaller industrial sector than the other countries and prior government policy interventions that already brought the country close to maximising its potential for fuel switching in the power sector.

Demand started dropping week on week in Italy, France and Germany around 13 March. Italy had already entered into national lockdown and factory closures accelerated as the virus spread and the supply of parts dried up from other countries, particularly China.

All three countries have since shown signs of demand stabilising at a lower level than expected. Germany, which has imposed the least severe lockdown out of the four countries, has the highest relative gas demand, although this would drop further if restrictions tighten or additional factories shut down.

British gas demand remained normal for longer than the other countries, but started noticeably dropping from 20 March and has since fallen further than Germany.


There are early signs that gas demand has stabilised below normal in each of Europe’s four most populous countries.

• Over the weekend, French gas demand remained stable compared to the prior weekend after controlling for temperature at 25% below the model’s expectation and more than 30 percentage points below the 24 February-14 March period

• Italian gas demand has been relatively stable week on week for the past six days around 15% below expectations and 20 points below 24 February-13 March

• Like France, British gas demand remained stable week on week over the weekend, but at 12.5% below expectations

• Like Italy, German gas demand has held steady week on week for the past six days at around 6% below expected and 12 points below 24 February-9 March

It is still early days, particularly for the countries where the slide has so far only halted over the weekend, where demand could reasonably be expected to drop at a different rate than during working days.

Any further change to lockdown restrictions or industrial activity would likely influence future gas demand at an unpredictable rate.

Finally, these findings refer specifically to the period 24 February-29 March in each of the countries. New models will be required to predict demand as Europe moves deeper into the gas summer.

Nevertheless, the models provide key early baselines for the drop in gas demand in Europe’s largest countries amid national lockdowns.