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Gas has enough room to expand in energy markets

Last week, I discussed the International Energy Agency’s “World Energy Outlook 2017” on energy requirements up to 2040 and the fortunes of crude oil. Natural gas deserves a review of its own.

In the New Policies Scenario (NPS), the middle of the road case, total energy requirement is expected to increase from 13.76 billion tons of oil equivalent (btoe) in 2016 to 17.584-btoe in 2040, a growth of 28 per cent. Natural gas demand would grow from 3- to 4.35-btoe respectively, a growth of almost 45 per cent compared to the 10 and 5 per cent for oil and coal, respectively.

In the NPS, “natural gas grows to account for a quarter of global energy demand by 2040, becoming the second-largest fuel in the global mix after oil”. A few years ago there was the expectation that natural gas would close the gap with oil, or even capture a higher share. But the great strides made by renewable energy, especially in electricity generation, reduced growth rates for gas from 2.3 per cent a year in the last 25 years to 1.6 per cent a year in the current outlook.

In the Current Policies Scenario (CPS), prospects for gas would be even higher as demand would reach 4.682-btoe.

While there would be growth in all regions, Asia is the main growth area and the Middle East will have the second highest.

The sectoral demand will be dominated by industry and power generation, and their share of the expected growth would be 64 per cent. The rest would be for buildings, transportation and other uses.

The IEA says “the remaining resources of natural gas are sufficient to comfortably meet the projections of global demand growth to 2040”. And “proven reserves stood at some 215 trillion cubic meters (tcm) at the end of 2016, equal to around 60 years of production at current output rates.”

The global resources (volumes in place) of natural gas are much higher at nearly 800-tcm and this would undoubtedly assure a growth in reserves in the future.

While the Middle East is the region with proven reserves of 80-tcm, its resource base is only 123-tcm, and lower than of Eurasia, the Asia-Pacific and North America. For the period under consideration, Middle East production will be the major contributor to natural gas demand growth at 418-tcm. The wider spread of natural gas resources as compared to oil makes it more attractive from the supply security point of view.

The increase in natural gas availability is affecting use and trade patterns around the world. In the Middle East, gas can be easily substituted for liquid fuels in power generation as well as exports in the case of Qatar, the UAE and Iran. By 2040, exports could be 20 per cent of production.

In the US, theincrease in shale gas production has turned the country to a net exporter. And 14 per cent of North American production in 2040 is expected to be exported, despite increasing volumes going into US petrochemicals. Russia would continue to export 40 per cent of production. Europe and Asia would continue to import higher volumes.

Global gas trade is expected to increase from 706- to 1230-bcm between 2016-40, where LNG would take an increasing role in exports and its share increase from 39 per cent to 59. By the mid-2020s, the US would take the crown of LNG exporters from Qatar. China’s imports in 2040 are expected to be 280-bcm, second only to the European Union, where both regions will have access to pipelines as well as LNG regasification terminals.

The IEA says the “number of LNG-importing countries has risen from 15 in 2005 to 40 today. Gas supply also becomes more diverse: the amount of liquefaction sites worldwide doubles to 2040”.

Therefore, LNG will account for almost 90 per cent of projected growth in long-distance gas trade up to 2040. The increase in LNG trade and the availability of spot cargos is “helping to accelerate a shift towards a more flexible, liquid, global market”, the Outlook adds. But “price formation is based increasingly on competition between various sources of gas, rather than indexation to oil.”

This is a major shift not so much to the liking of gas producers, but they must be aware of its impact. For natural gas to meet this outlook, the industry must tackle questions of flaring and methane leaks to “bolster the environmental case for gas”. This cannot be the case with “76 million tonnes of methane emitted worldwide each year in oil and gas operations”. And probably much more in flaring.
Source: Gulf News

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