Key uncertainty - risks to gas demand

Gas consumption grows faster than oil and coal, but there are risks. Demand growth could be slower if less priority is attached to moving away from coal

Natural gas is projected to grow at more than twice the rate of either oil or coal, with its share within primary energy increasing throughout the Outlook.

The strength of natural gas demand partly reflects gas gaining share from coal, helped by government policies encouraging a shift away from coal and supporting growth in gas.

Consumption growth by fuel (% per annum 2015-2035)

Gas will gain share from coal, helped by government policies encouraging a shift away from coal and supporting growth in gas

Natural gas growth 2015-2035

Our alternative transition cases consider how demand for natural gas could be challenged by future climate and environmental policies

The ‘faster transition’ cases illustrate how tighter climate policies may cause the growth of gas to be slower than anticipated. It is also possible that the growth of natural gas may be threatened if there is less government support encouraging a switch from coal into gas.

To explore this possibility, we created an alternative ‘slower gas’ case where the demand for coal is more resilient than in the base case, with slower growth in gas consumption.

The growth of natural gas is a third slower (1.1% p.a. versus 1.6% p.a. in the base case), such that the share of gas within primary energy falls between now and 2035. The share of coal continues to fall in this alternative case, but less rapidly than in the base case.

The strength of natural gas demand could be challenged

This alternative case assumes that climate and environmental polices tighten by less than expected in the base case. In particular, the set of regulatory policies aimed at promoting a shift away from coal and towards natural gas are considerably weaker and there is effectively no support from carbon pricing.

This is equivalent to assuming an increase in the price of gas relative to coal of around 50% compared to the base case.

In China - which accounts for one-third of the global reduction in gas demand relative to the base case - the share of coal within China’s total energy still declines, but at a slightly slower rate. The impact on Chinese gas consumption is more marked, with the share of gas in China’s energy mix increasing only slightly, rather than almost doubling as in the base case.

This alternative case, together with the faster transition cases, demonstrate that the strength of natural gas demand envisaged in the base case could be challenged by alternative assumptions about the strength of future climate and environmental policies, with both stronger and weaker policy assumptions posing potential threats.

In our alternative ‘slower gas’ case, the growth of natural gas is a third slower between now and 2035

Our alternative case assumes an increase in the price of gas relative to coal of 50% compared to the base case

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