IEA - IEA Gas Outlook 2018-IEA (2018).pdf

gas 2O18Analysis and Forecasts to 2O23MarketReportSeriesINTERNATIONAL ENERGY AGENCYThe IEA examines the full spectrum of energy issues including oil, gas and coal supply and demand, renewable energy technologies, electricity markets, energy efficiency, access to energy, demand side management and much more. Through its work, the IEA advocates policies that will enhance the reliability, affordability and sustainability of energy in its 30 member countries, 7 association countries and beyond.The four main areas of IEA focus are n Energy Security Promoting diversity, efficiency, flexibility and reliability for all fuels and energy sources;n Economic Development Supporting free markets to foster economic growth and eliminate energy poverty;n Environmental Awareness Analysing policy options to offset the impact of energy production and use on the environment, especially for tackling climate change and air pollution; andn Engagement Worldwide Working closely with association and partner countries, especially major emerging economies, to find solutions to shared energy and environmental concerns.IEA member countriesAustraliaAustria BelgiumCanadaCzech RepublicDenmarkEstoniaFinlandFranceGermanyGreeceHungaryIreland ItalyJapanKoreaLuxembourgMexicoNetherlandsNew Zealand NorwayPolandPortugalSlovak RepublicSpainSwedenSwitzerlandTurkeyUnited KingdomUnited StatesThe European Commission also participates in the work of the IEA.Please note that this publication is subject to specific restrictions that limit its use and distribution. The terms and conditions are available online at www.iea.org/t competitiveness of natural gas, either sourced from domestic production or imported, is therefore a crucial factor in sustaining such demand growth. Emerging Asian markets, where half of the global consumption increase is expected in the medium term, still mainly use oil-indd mechanisms to define natural gas prices. Importing countries should pursue adequate market res to further open their own domestic gas markets if they intend to benefit from the development of more competitive wholesale gas markets, including market-based natural gas pricing mechanisms. Industry takes the leadership from power generation in sectoral demand growth Gas for power generation, once the primary source of growth, expands slowly amidst tougher competition among generation fuels. Power generation accounted for half of the growth in natural gas consumption over the last decade, helped by abundant fuel supply in mature markets, fuel switching from oil in emerging markets, and the reduction in nuclear generation in the aftermath of the Fukushima Daiichi nuclear accident. During the projection period, natural gas for power generation continues to grow in North America and the Middle East driven by cheap domestic resources, but slower global electricity demand growth, the rapid rise of global renewable electricity production and tough competition from coal, particularly in Asia, limit its growth prospects. © OECD/IEA, 2018CUTIVE SUMMARY GAS MARKET REPORT 2018 13 Industry emerges as the main driver of growth in natural gas consumption. The industrial sector is expected to account for 40 of the increase in natural gas consumption, replacing power generation as the main driver. Incremental industrial uses cover both energy for processes and feedstock for chemicals including fertilisers in emerging economies and feedstock for petrochemicals for export in regions with abundant natural gas. The United States keeps its leading role in supply and export growth The United States, the largest producer of natural gas, accounts for the largest share of supply expansion, with the production outlook given a boost by the gas associated with tight oil output. US natural gas production recovered in 2017 after a decline in 2016. Shale gas now accounts for two-thirds of total output. Shale gas from the Appalachian dry gas and Permian mainly associated gas basins are the main pillars of US gas production growth and continue to grow, with Permian taking the lead as recovering oil prices favour investment in US light tight oil LTO production, increasing associated natural gas output. Additional US production accounts for almost 45 of the global growth and two thirds of that is exported via pipeline to Mexico or as LNG globally. Most of the increase in gas output from other major producing areas, such as the Middle East, China and Egypt, is dedicated to domestic markets. Outside of the United States, Australia and the Russian Federation hereafter, “Russia” are the main contributors to export growth Figure ES.2. Russia is seeking to diversify its export outlets through new export infrastructure, with a pipeline to China and 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. Figure ES.2 Natural gas production growth in selected countries and regions, 2017-23 -50050100150200United States Middle East China Australia Russia Egypt Europebomestic market Export marketAfter a period of ample supply, the LNG market could start to tighten by 2023 LNG appears as the main driver of inter-regional natural gas trade growth, sustained by strong export capacity expansion. The wave of LNG export projects adds some 140 bcm of liquefaction capacity between 2018 and 2023, increasing global capacity by almost 30. More than half of that expansion over 80 bcm takes place in the United States. Australia and Russia also provide significant contributions with 30 bcm and 15 bcm respectively. In comparison, pipeline expansion is more limited, happening mainly in North America United States to Mexico and from Eurasia to Europe and China. © OECD/IEA, 2018CUTIVE SUMMARY 14 GAS MARKET REPORT 2018 The emergence of the United States as a global exporter challenges the traditional features of LNG trade. This wave of liquefaction projects, expected in the coming two years, ensures ample supply and growth of LNG trade but also challenges the traditional features of supply contracts. Emergence of US exports with flexible destination and gas-indd pricing presents different models from the standard fixed-delivery, oil-indd supply agreements. Australia and the United States appear as new global players likely to challenge Qatar in Asian markets. Figure ES.3 LNG liquefaction capacity and utilisation, 2013-23 6570758001002003004005006007002013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023Load factorLNGtrade and capacitybcmLNG trade Total liquefaction capacity nameplate Load factorA lack of projects post-2020 could lead to a market tightening. Nearly all the new liquefaction capacity should be operating by 2020. In the short run, this massive capacity addition is likely to result in a surplus. This will increase competition among suppliers for customers while it can take time, especially for new customers, to construct receiving infrastructure. This loose market could be short-lived owing to the dynamic growth in Asian emerging markets. Without new investment, the average utilisation rate of liquefaction is likely to return to its pre-2017 level by 2023 Figure ES.3. Owing to the long lead time of such projects, investment decisions need to be taken in the next few years to ensure adequate supply beyond 2023. © OECD/IEA, 2018DEMAND GAS MARKET REPORT 2018 15 1. DEMAND Highlights 2017 showed strong growth of 3 in global demand for natural gas, principally driven by the People’s Republic of China hereafter, “China”, which accounted for 37 of the total increase. Most of the growth in global natural gas consumption was due to industrial demand as well as a weather-related contribution from residential, a significant departure from power sector-driven growth of over a decade long. The global natural gas market is expected to pass the 4 trillion cubic metre tcm mark during the outlook period, with an average annual growth rate of 1.6, thus adding around 376 billion cubic metres bcm to annual demand by 2023. The Asia and Pacific region accounts for half of this medium-term consumption growth, mainly driven by China, which alone comprises over one-third of the global increase. India contributes 7 to global growth and the rest of the region 11. The United States is the second-largest individual contributor to growth in natural gas consumption after China, with an average growth rate of 1.6 per annum, accounting for 15 of global demand growth by 2023. Industry is the main driver of growth in global natural gas demand, followed by power generation. Demand from the industrial sector including non-energy uses grows at an average of 2.6 until 2023 and accounts for 40 of the consumption increase. Global overview Global demand for natural gas grew by 3 in 2017, significantly above the average rate of 1.5 experienced in recent years. China was the largest single contributor with a 14.5 annual increase, and Europe also saw sizeable growth – partly weather-related. Natural gas demand remained stable in mature Asian markets, while gas for power generation fell in the United States on lower electricity demand and a higher contribution from renewables. Natural gas consumption is expected to reach 4 116 bcm by 2023 Table 1.1, adding about 376 bcm or 10 over the period, slightly more than the 358 bcm added over the course of the previous six years. The compound average annual growth rate CAAGR of demand is 1.6 over the forecast period. The Asia and Pacific region accounts for over half of total consumption growth until 2023, because of robust growth in developing Asia. China, whose market grew by an astonishing 15 in 2017 with a strong coal-to-gas switching programme in the residential and industrial sectors, continues to lead this trend with an expected average annual growth rate of 8 for the next five years. Other emerging Asian economies such as India, Bangladesh and Pakistan, are also expected to see sustained demand growth during the forecast period. By contrast, consumption in the Asia and Pacific region’s more mature markets decreases over the period, with slight growth in Australia and Korea more than offset by the decrease in Japanese demand. © OECD/IEA, 2018DEMAND 16 GAS MARKET REPORT 2018 Table 1.1 Global natural gas demand by region, 2017-23 bcm Region 2017* 2019 2021 2023 CAAGR 2017-23 Contribution to global growth Africa 139 145 154 160 2.3 5 Asia and Pacific – China 237 277 331 376 8.0 37 Asia and Pacific – Other 537 555 582 602 1.9 18 Eurasia 645 644 641 638 -0.2 -2 Europe 547 535 533 536 -0.4 -3 Latin America 169 173 179 186 1.6 4 Middle East 502 526 553 582 2.5 21 North America 965 1 015 1 022 1 037 1.2 20 Total 3 740 3 869 3 994 4 116 1.6 * Provisional data. Natural gas demand in North America is expected to maintain the growth trend observed in recent years albeit at a slower pace, with an average annual consumption increase of 1.2, adding 73 bcm over the forecast period – or 20 of global demand growth Map 1.1. The United States accounts for 80 of the region’s growth or 58 bcm, driven by abundant shale gas production. Map 1.1 Global natural gas consumption growth by region, 2005-11, 2011-17, 2017-23 Demand growth in the Middle East remains high, at an average of 2.5 per year, mainly driven by the strong power generation needs of Iran and Saudi Arabia. Annual demand in the European market is expected to decline by 11 bcm over the next five years. While the residential and industrial sectors remain flat, natural gas demand for power © OECD/IEA, 2018DEMAND GAS MARKET REPORT 2018 17 generation declines owing to the growth of renewables and despite a rebound over the final years with the impact of Germany’s nuclear phase-out. Eurasia’s demand is also expected to see a slight decline, at an average of -0.2 per year, with growth in Caspian and Central Asian countries being offset by decreases in Russia and Ukraine. Medium-term demand in Latin America sees average growth of 1.6 per year, mainly led by Argentina and Brazil. Demand in Argentina is expected to grow at a faster pace 2 per year helped by the development of domestic production. Brazil’s consumption decreases slightly -1.4 per year with developments in the industrial and transport sectors being offset by the decline in natural gas for power generation. Africa is expected to experience an average annual growth rate of 2.3 until 2023, driven by power generation needs in North Africa and in Egypt in particular. Market development in sub-Saharan Africa shows some positive signs, with several domestic production and liquefied natural gas LNG import projects, although demand is expected to remain flat for the next five years. Sectoral outlook Similar to the analysis in last year’s report IEA, 2017a, this forecast finds that the industrial sector accounts for over 40 of the consumption increase until 2023, larger than any other sector Figure 1.1. This is a significant change compared to past trends where gas for power generation was driving demand growth. Competition from cheaper renewable energy sources and coal has squeezed natural gas, and is expected to continue to do so through to 2023. Figure 1.1 Global natural gas demand by sector, 2003-23 05001 0001 5002 0002 5003 0003 5004 0004 5002003 2008 2013 2018 2023bcmPower generation Industry Residential and commercial Energy industry own use Transport Losses0501001502002502005-11 2011-17 2017-23Change over periodbcmGlobal natural gas demand from the industrial sector grows at an average rate of 2.8 throughout the outlook period, reflecting the expectation of economic growth in emerging economies, especially in Asia where gas demand is expected to increase by over 5 per year. China emerges as a large industrial user of gas, with demand growth averaging 8 per year, encouraged by economic growth and fuel substitution policies. By 2023, Chinese industrial gas demand surpasses that of Eurasia and is close to European levels 130 bcm per year [bcm/y]. This rapidly growing consumption in the Asian region covers natural gas use as a fuel for industrial processes as well as non-energy uses as a © OECD/IEA, 2018DEMAND 18 GAS MARKET REPORT 2018 feedstock for petrochemicals or fertilisers. Contrary to the industrial sector in Asia, which sees increasing reliance on imports, the same sector in natural gas-rich regions such as North America and the Middle East benefits from abundant and competitive domestic resources to develop its exports of petrochemicals. Both regions are expected to experience strong, if less spectacular growth, at respective average rates of 2.2 and 2.8 per year. Power generation currently accounts for over 40 of total natural gas consumption. The sector was the