In the evolving transition (ET) scenario, natural gas growth is supported by a number of factors:
The US and the Middle East (Qatar and Iran) contribute over half of the incremental production.
By 2040, the US accounts for almost one quarter of global gas production, ahead of both the Middle East and CIS (each accounting for around 20%).
Global liquefied natural gas (LNG) supplies more than double over the Outlook, with around 40% of that expansion occurring over the next five years.
The sustained growth in global LNG supplies greatly increases the availability of gas around the world, with LNG volumes overtaking inter-regional pipeline shipments in the early 2020s.
In the evolving transition scenario, natural gas growth is supported by increasing levels of industrialization and power demand, particularly in emerging Asia and Africa
Growth in natural gas demand is led by increases in industry and the power sector.
In the ET scenario, growth in industrial use of gas (55 Bcf/d) is supported by both continued industrialization in developing economies, together with gas gaining share as some countries in both OECD and non-OECD switch away from coal.
The increase in gas used by the power sector (59 Bcf/d) is driven by the overall growth in global power demand. The competing trends in renewables and coal demand means the share of gas within the power sector is relatively flat over the Outlook.
The growth of gas demand within buildings (21 Bcf/d) is less significant, reflecting that almost all of the incremental energy demand within buildings over the Outlook is for electricity to provide space cooling and power electrical appliances.
The fastest rate of growth of gas demand is in the transport sector as gas is increasingly used in trucking and maritime. Although the increase in transport demand is small in absolute amount (11 Bcf/d), the share of gas within transport increases to almost 5% by 2040.
In the evolving transition scenario, the US accounts for almost one quarter of global gas production by 2040
Global LNG supplies more than double over the Outlook, with around 40% of that expansion occurring over the next five years
The fastest rate of growth of gas demand is in transport as gas is increasingly used in trucking and maritime. Although the increase in transport demand is small in absolute amount, the share of gas within transport increases to almost 5% by 2040
One way of analysing the projected growth in natural gas is to separate it into two components: growth due to ‘switching’ – that is, gas gaining share relative to coal (and to oil in transport); and growth caused by ‘other effects’, mainly economic growth.
In the ET scenario, around half of the growth in gas is due to switching. Some of this switching is driven by the increasing availability of low-cost gas (for example, the US and the Middle East), and some is due to policy measures promoting a shift to a lower carbon fuel mix (for example, Asia and the EU). One risk to the prospects for natural gas is that these environmental policy measures are less stringent than envisaged in the ET scenario.
Consider an alternative scenario in which there is no coal-to-gas switching in the two regions in which policy plays the greatest role (Asia and the EU), as well as limited oil-to-gas switching in transport. The growth of natural gas in this ‘less gas switch’ scenario averages around 1.1% p.a. compared with 1.6% p.a. in the ET scenario.
The weaker growth in the ‘less gas switch’ case is concentrated in China which has a significant degree of coal-to-gas switching in the ET scenario, and, to a lesser extent, the EU. Gas growth in India and the rest of Asia is relatively unchanged.
In contrast to the steady increase projected in the evolving transition scenario, the share of gas in primary energy falls in all of these alternative scenarios
The prospects for gas demand could be adversely affected by either weaker or stronger environmental policies. Weaker policies could dampen the shift away from coal towards natural gas as in the ‘less gas switching’ scenario, whereas stronger policies could encourage greater gains in renewables and energy efficiency.
The ‘renewables push’ scenario assumes that the level of policy support for renewables persists around current levels for the entire outlook, crowding out gas (and coal) from the power sector (pp 98-99 describe the ‘renewables push’ scenario and its implications in more detail). Global gas demand grows by around 1% p.a. in the ‘renewables push’ scenario, similar to the ‘less gas switching’ scenario.
The growth of gas demand is slower in the ‘faster transition’ and ‘even faster transition’ scenarios, reflecting the more comprehensive climate policies assumed in these scenarios, which lead to significant improvements in energy efficiency, as well as to a lower-carbon fuel mix.
The share of gas in primary energy falls in all of these alternative scenarios, relative to the current level, in contrast to the steady increase projected in the ET scenario.
Global LNG supplies expand rapidly, leading to a more competitive, globally integrated gas market.
In the ET scenario, LNG more than doubles over the Outlook. Much of that growth is concentrated over the next few years as a number of existing projects are completed, followed by slower increases over the remainder of the Outlook.
LNG exports are dominated by the US and Qatar, which account for almost half of global LNG exports by 2040. But material increases are also projected in Australia as existing projects are completed, Russia, and East and West Africa.
The increasing accessibility and competitiveness of gas associated with LNG helps to develop new and expanding markets, led by China together with some smaller Asian countries, such as Pakistan and Bangladesh. Europe remains a key market, both as a potential ‘market of last demand’ for surplus LNG cargoes and as a key hub of gas-on-gas competition between LNG and pipeline gas.
The mobility of LNG cargoes and their ability to be diverted in response to price signals causes the gas market to become increasingly integrated, with movements in global gas prices becoming more synchronized.
Global LNG supplies expand rapidly, leading to a more competitive, globally integrated gas market
Asia and Europe together account for the vast majority of LNG demand by 2040. As such, how these markets develop will have an important bearing on global LNG trade.
One question is whether Asia will provide a market for significant volumes of US LNG.
A comparison of total Asian LNG imports with LNG exports from regions which are closer to Asia than the US and so have lower shipping costs, suggests that, in principle, there may be relatively little need for Asia to import LNG cargoes from the US.
However, in practice, both LNG sellers and buyers see value in diversifying their portfolios, and so significant quantities of US LNG are likely to be exported to Asia.
In Europe, domestic gas production is set to roughly halve over the Outlook causing the share of imported gas in total consumption to increase from around half in 2016 to three-quarters by 2040.
In the ET scenario, the development of a globally integrated gas market limits European concerns about becoming overly dependent on gas exports from Russia, allowing Russia to broadly maintain its share of European gas imports. As such, the share of Europe’s total gas consumption met by Russian exports increases from around a third currently to almost half by 2040.