Global Gas Scenario

Supply set to grow nearly 50 per cent by 2040

Liquefied natural gas (LNG) is one of the most commonly used fuels to meet global energy needs. It caters to both the electric power sector and the industrial sector. In the power sector, natural gas is preferred for new generating plants owing to its fuel efficiency. Natural gas is also cleaner than coal and petroleum products. As more governments begin implementing national and regional plans to reduce carbon dioxide (CO2) emissions, they may encourage the use of natural gas to displace carbon-intensive coal and other liquid fuels.

A comparison of different energy sources reveals that LNG is among the fastest growing fuels, contributing significantly to the global upsurge in energy production and consumption. While renewable energy is expected to be the fastest growing source of energy, accounting for half of the growth in global energy supplies and becoming the largest source of power by 2040, natural gas is also set to grow significantly owing to the availability of abundant low-cost gas supplies. In the evolving transition (ET) scenario, natural gas is expected to grow at an average rate of 1.7 per cent per annum, increasing nearly 50 per cent by 2040.

Demand surge

Considering all possible scenarios, the world GDP is expected to more than double by 2040, driven by increasing prosperity in fast growing developing economies. With this, the demand for energy is also set to increase significantly. In the ET scenario, this improvement in living standards is expected to increase energy demand by one-third of current demand by 2040. This will be led by India, China and other Asian countries, which will together account for almost two-thirds of the increase. The power and industrial sectors will contribute equally to this demand. The transport sector is expected to record the fastest growth, albeit in small volumes.

In the ET scenario, the use of gas will increase in industry, and decrease in the power sector. The increased industrial demand for gas will come from developing economies as they continue to industrialise rapidly. These include regions with large gas resources such as the Middle East and Africa. Coal-to-gas switching, especially in China, also supports gas demand for industrial use. The additional gas absorbed by the power sector will be driven by the increase in power demand, with the share of natural gas in the global power sector remaining relatively stable at around 20 per cent.

Among the major gas producers, only North America is expected to experience an increase in the share of gas as compared to coal. Although the use of gas in the transport sector will grow rapidly, its share will remain relatively small as compared to the industrial and power sectors. The speed and pattern of growth in gas demand, particularly countries which are not a part of  Organisation for Economic Co-operation and Development, will depend on the rate at which the required supporting infrastructure is built.

Gas supply outlook

The global gas production is expected to be led by the US and the Middle East (Qatar and Iran), which together are expected to account for almost 50 per cent of the growth in gas production, supported by an increase in output in China and Russia.

Besides, gas trade is expected to gain traction with the robust expansion of LNG supplies, which will account for more than 15 per cent of total gas demand in 2040, surpassing interregional pipeline shipments in the late 2020s. Global LNG volumes are set to expand substantially, leading to a more competitive, globally integrated gas market. In the ET scenario, LNG trade will more than double, reaching almost 900 billion cubic metres (bcm) in 2040 from around 400 bcm in 2017. The increase in LNG exports is expected to be led by North America, followed by the Middle East, Africa and Russia.

As the LNG market matures, the US and Qatar will emerge as the main centres of LNG exports, accounting for around 40 per cent of all LNG exports by 2040. Asia will remain the dominant market for LNG imports, although the pattern of imports within Asia will change. China and India  will surpass the more established markets of Japan and Korea to account for around half of all LNG imports by 2040. Europe will remain a key market, serving both as a “balancing market” for LNG supplies and a key hub of gas-on-gas competition between LNG and pipeline gas.

However, the precise profile of LNG volume growth will depend on the timing and availability of the new investments needed to finance the considerable expansion. Owing to the cyclical nature of LNG investments, there is a risk that the development of the LNG market will continue to be associated with periods of volatility.

Meanwhile, the increase in LNG supplies is expected to spur competition between LNG and pipeline gas, particularly in Europe and China, two of the largest importers of gas. In the ET scenario, European gas production will decline by 40 per cent, causing Europe’s import dependency to increase to around three-quarters in 2040. Europe’s existing infrastructure shows that it has the capacity to substantially increase its imports of LNG and pipeline gas, especially from Russia. Owing to its ease of transportation, pipeline gas has a marked cost advantage over LNG. However, pipeline imports will increase Europe’s dependence on Russia for gas. In the ET scenario, the development of a globally integrated gas market will ease these concerns, allowing Russia to increase its share in European gas demand. In China, despite a sizeable increase in domestic production, demand growth outstrips supply, causing import dependency to rise to over 40 per cent by 2040. Around half of these additional imports will be met by incremental pipeline capacity from Russia and other CIS countries, and the remainder by LNG. As in Europe, China’s choice of gas supply may also depend on the energy security implications of different sources of supply.

Conclusion

Overall, the outlook for LNG seems encouraging. The global gas production is expected to witness an upsurge, accounting for a large share in the total energy growth up to 2040. It will largely be driven by the increasing demand for environment-friendly sources of energy globally. Meanwhile, the overall pattern of gas supply will be determined by the amount of infrastructural investment in different countries to expand the energy production capacities.

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