IEA's 'Gas 2018' Sees China, Industry, Driving Demand
Strong demand growth from China, greater industrial demand, and rising supplies from the United States, will transform global natural gas markets over the next five years, according to the International Energy Agency's latest market forecast.
Global gas demand will grow at an average rate of 1.6% a year, reaching just over 4.1 trillion m3 in 2023 (or 144.7 trillion ft3), up from 3.74 trillion m3 in 2017, according to the IEA's latest annual gas market report, Gas 2018, released June 26.
"In the next five years, global gas markets are being re-shaped by three major structural shifts," said IEA executive director Fatih Birol. "China is set to become the world's largest gas importer within two-to-three years, US production and exports will rise dramatically strongly and industry is replacing power generation as the leading growth sector. While gas has a bright future, the industry faces tough challenges. These include the need for gas prices to remain affordable relative to other fuels in emerging markets and for industry to curb methane leaks along the value chain."
China 'becomes world's top gas importer by 2019'
Chinese gas demand is forecast to grow by 60% between 2017-2023, underpinned by policies aimed at reducing local air pollution by switching from coal to gas. China alone accounts for 37% of the growth in global demand in the next five years and becomes the largest natural gas importer by 2019, overtaking Japan.
The report's executive summary forecasts that China becomes the world’s largest natural gas importer by 2019 - rising to 171bn m3 of imports by 2023, mostly supplied as LNG - as domestic output does not keep up with rising demand.
The IEA also forecasts strong growth in gas use in other parts of Asia, including in South and Southeast Asia, driven by strong economic growth and efforts to improve air quality. It also expects the rebound in natural gas availability and use in Egypt to play a large part in the increase in consumption in Africa, while Latin American markets are reforming to develop the role of domestic production. Consumption in Eurasia in contrast will slightly decrease due to sluggish economic growth, with mature net importers like Europe, Japan and Korea expected to see gas demand stagnate.
Industry takes the lead
For end-use sectors globally, industry will become the largest contributor to the increase in global gas demand to 2023, taking the lead from power generation which had historically held this role. The change is especially marked in Asia and other emerging markets thanks to higher gas use in industrial processes and as feedstock for chemicals and fertilisers. Overall, industry accounts for over 40% of growth in global gas demand to 2023, according to the IEA, followed by 26% for power generation.
Major changes are also evident on the supply side, with the US leading gas production growth worldwide to 2023, thanks to the ongoing US shale revolution. Most new US supplies will be geared to export markets as LNG or through pipelines; indeed the IEA says that additional US production out to 2023 will account for almost 45% of the global growth - and two thirds of that is exported via pipeline to Mexico or as LNG globally.
The development of destination-free and gas-indexed US LNG exports will provide additional flexibility to the expanding global waterborne traded market, the IEA asserts.
LNG is progressively taking a larger share in global gas trade, especially in Asia. The IEA forecasts that LNG trade as a share of total gas trade is forecast to rise from a third in 2017 to almost 40% in 2023. Emerging Asian markets will account for about half of global LNG imports by 2023. This continued rise in the LNG market will have significant impacts on trade flows, pricing structures and global gas security, the Paris-based agency cautioned.
LNG market could 'start to tighten in 2023'
The current wave of LNG export projects will increase liquefaction capacity by 30% by 2023. This will be led by an increase in output from the US, which accounts for nearly 75% of the growth in total global LNG exports in the period, followed by Australia and Russia. However, a lack of new LNG projects after 2020 could lead to a tightening of LNG markets. Given the long-lead time of such projects, investment decisions will need to be taken in the next few years to ensure adequate LNG supply beyond 2023, the IEA warns.
Turning to piped gas supplies, the IEA says that Russia is seeking to diversify its export outlets through new export infrastructure, with a pipeline to China (as well as LNG export terminals). By contrast, Europe’s domestic supply deficit increases with the progressive depletion of North Sea production and the phasing out of the Groningen field, calling for additional LNG and pipeline imports to bridge the gap.
Price competitiveness will be crucial for gas to gain a firm foothold in emerging markets. This requires market evolutions and reforms, such as the development of trading hubs, opening up of the downstream to competition and fair access to infrastructure. Improving air pollution will be a key driver of gas demand, especially in emerging markets, and industry's ability to improve its environmental footprint, including by reducing methane emissions and expanding the deployment of carbon, capture, utilisation and storage (CCUS) technology, will be critical for gas prospects.
(Banner photo is of the IEA executive director Dr Fatih Birol, taken a few years ago, courtesy of the IEA)