The future looks bright for natural gas. The IEA and other leading bodies are largely agreed that demand will grow faster than for oil and coal over the next five years, as gas becomes a stopgap in the move towards renewable energy. The Paris-based organisation has revised its growth forecast from 1.5 percent a year in 2016 to 1.6 percent this year, and says global consumption will rise from 3,630 billion cubic metres (bcm) to 4,000 billion in 2017. Ninety percent of new demand will come from developing economies, spearheaded by China.
Much of growth comes from manufacturing
The main driver of this increase is the manufacturing sector, which accounts for around half of the total. Here, annual growth is forecast at around 3 percent, thanks to increased use by the chemicals sector, stronger demand for fertilisers in India, Indonesia and elsewhere, and the switch from coal to gas in many small industrial applications, primarily in Asia. Gas use by the transport sector is forecast to rise from 120 bcm in 2016 to 140 in 2022. Demand for electricity generation is also set to increase, but at a much lower rate of under 1 percent a year. In many mature markets, the rapid rise of renewables and modest growth in electricity demand limit opportunities for thermal generation. Many emerging markets are reliant on imported gas, particularly those which do not disincentivise coal or have strict pollution laws, and here gas faces much stronger competition from coal.
More reforms and growth in Asia
Gas will also benefit from energy reforms in a number of countries, including China, Mexico and Egypt. These tend to encourage greater private-sector participation in managing reserves, and in transport, marketing and infrastructure projects. If implemented consistently, the reforms could increase investment throughout the supply chain and make demand and reserve management more sustainable.Gas is also growing fast in Asia, thanks mainly to healthy reserves and competitive prices. China leads the way, accounting for 40 percent of the rise in global demand. While growth slowed in 2015 and 2016, it is predicted to rise by 8.7 percent a year to 340 bcm in 2022 on the back of government initiatives to improve air quality. Domestic production is also rising sharply, and forecast to reach 200 bcm by 2022. India will be the other big player in the boom in Asian gas, which currently accounts for only 5 percent of primary energy demand, and thus offers significant expansion potential.
Bright outlook for Middle East, Africa and US
The Middle East will also see a relatively big rise in gas consumption, with annual growth of 2.4 percent to around 540 bcm, largely met from increased domestic production. Growth will be even higher in Africa, at 3.1 percent, reaching over 150 bcm by 2020. The top three consumers are Egypt, Algeria, and Nigeria. Demand will grow by an average of 1.3 percent in Latin America, but remain largely unchanged in Russia, eastern Europe and central Asia. In the United States, currently the world’s biggest gas producer, the transition from coal to gas ín electricity generation has been the main stimulus to demand growth in the recent past. This is expected to fall significantly, though prices will rose from their current average of $2.50 per million Btu (Henry Hub) in 2016. The biggest increase in US usage will be in manufacturing, where low gas prices have created a competitive market. Much the same is true in Europe where, after four years of decline from 2010 onwards, there was an upturn in 2016 thanks to low prices and coal-fired power station shutdowns. However, demand is not expected to increase significantly between now and 2022, and the IEA says that limited market access could reduce output growth in Russia.
Liquefied natural gas use continues to expand
The volume of liquefied natural gas on the market is growing, and comes from a greater variety of sources as the number of exporting and importing countries increases. Liquefaction capacity is predicted to rise by 160 bcm by 2022. Initially, the main contributor will be Australia (30 bcm), but the biggest increase in growth over the period will be in the United States, at 90 bcm. This additional capacity comes as the market is already well supplied, and with LNG prices relatively low, exporters are having to open up new niche markets. One positive result of these efforts is rapid growth in the number of countries importing LNG, from 15 in 2005 to 39 today. The IEA also predicts substantial growth in pipeline exports, particularly between the United States and Mexico. In Europe, a fall in domestic production is being offset by the long-awaited startup of new connections with Azerbaijan and Turkey and the Power of Siberia pipeline linking Russia and China.