GECF Global Gas Outlook 2040
By Dr. S.M. Hossein Adeli
- Fossil fuels will be the dominant source of global energy for the next 25 years. The share of gas in the primary energy mix will increase from 21 per cent to 25 per cent as the share of oil and coal decreases.
- Global gas production will increase 50 per cent between 2015 and 2040. Excess global supply will put pressure on utilization rates and high-cost producers.
- Gas will become more global. By 2040, the global gas trade will increase by 60 per cent to reach 1,650 BCM
- Gas must play an important role in reducing greenhouse gas emissions if the targets established at the COP21 climate change conference are to be realized.
This is the first time the GECF is presenting an outlook on the global gas market – a unique data-intensive resource that draws upon the reserves and activities of more than 110 countries. This outlook will guide the GECF’s decision making and is a tool for its member to predict the future.
It’s based on a reference case scenario centred on an adequate supply of gas and sufficient security of gas demand. Additionally, it assumes a global shift in the geopolitical centre of gravity towards Asian markets as well as a shift in the structure of global economy from manufacturing to services. Finally, the reference case scenario follows that the global gas market will remain more regional than global, although there will be some limited integration among markets.
Our estimate is that global economic growth over the next 25 years will be similar to the past 25 years at 2.9 per cent annually. On the population front, there will be 1.7 billion more people in the world by 2040 and urbanization rates will increase from 54 per cent to 63 per cent in 2040. Such estimates add up to a growing global appetite for energy.
The demand for primary energy will increase by 30 per cent by 2040, or about one per cent every year – a huge amount. Gas will meet much of this need, as demand for gas will grow by 1.6 per cent per year. Forty per cent of the incremental increase of energy consumption will be gas, with a further 30 per cent coming from renewables.
According to the outlook, fossil fuels will be the dominant source of energy for the world over the next 25 years. The share of gas in the primary energy mix will increase from 21 per cent to 25 per cent as the share of oil and coal decreases. Renewables, meanwhile, will increase from around 12 per cent to 16 per cent.
On a regional level, gas will be the dominant source of energy in OECD countries over the next 25 years, representing approximately 32 per cent of their energy mix. But in non-OECD countries, coal and oil will still dominate, leaving gas at around 22 per cent. The bulk of additional gas demand will come from non-OECD Asia, North America and the Middle East.
Breaking demand down by sector shows the power generation industry is posed to record the largest increase in gas use, driven by the need to replace coal-fired power plants.
At 532 trillion cubic metres (Tcm), the world has sufficient gas resources. But of that, only 178 Tcm are identified proven conventional reserves. Bridging that gap will require investments.
CIS and North America represent almost half of the world’s gas resources, with the Middle East and Africa representing another 30 per cent. GCEF countries account for almost 50 per cent of the global resource base and nearly two-thirds of proven conventional reserves.
Global gas production will increase 50 per cent between 2015 and 2040. While the CIS and North America have each accounted for 25 per cent of global production in recent years, five countries – Russia, the U.S., China, Iran and Australia – will collectively represent more than two-thirds of the total incremental production through to 2040. The share of GECF countries in global marketed gas production is expected to remain relatively stable at around 38 per cent.
Production of unconventional gas, including shale, will increase in the coming years, rising from approximately 18 per cent of global production to 30 per cent.
Excess global supply will put pressure on utilization rates, but not enough to push it below 80 per cent. Spare capacity – which has an impact on prices – will increase from the current eight per cent to 16 per cent. This means high-cost fields will not be able to compete with low-cost fields, a situation that favours traditional gas producers.
On the LNG front, liquefaction capacity is expected to increase by 40 per cent or a total of 121 million metric tonnes per annum in the medium term.
Additional investments are key to realizing this additional production, especially since investment has been lagging in recent years. The total cumulative investment required in the upstream and gas transportation system is estimated at US$8 trillion between 2015 and 2040. Of this amount, only $1.7 trillion is needed by GECF members, which are traditionally low-cost producers.
On the trade front, gas will become more global. Currently, most gas produced around the world is used domestically, leaving only 30 per cent traded internationally. However, by 2040, the global gas trade will increase by 60 per cent to reach 1,650 Bcm. Of this increase, LNG will play an increasingly important role with growth of 2.8 per cent annually. This means the share of LNG in the global gas trade will increase from 30 per cent to between 40 and 45 per cent. The rise of LNG will also have implications on how gas is sold, leading spot trades to increase to 30 per cent of the global trade market.
Impact of the environmental agenda
The 2015 COP21 climate change conference appeared to be a turning point in energy and climate policy developments. However, achieving the commitments announced in Paris require many challenges and uncertainties to be overcome.
Reducing greenhouse gas emissions will require several policy shifts, including the promotion of energy efficiency, switching to less carbon-intensive fuels, promoting emission-free energy alternatives such as nuclear and renewables and the use of carbon sequestration and storage.
However, the position of gas as the cleanest fossil fuel needs to play a key role in these mitigation policies. Gas emits less CO2 and other harmful by-products and is cost-competitive against renewables and coal, especially when environmental externalities are considered.
Only greater adoption of gas can really contribute to the targets set out in COP21. Without gas, it’s very unlikely – even impossible – to reach those targets.
Gas demand and supply will remain coordinated during the outlook period. For the next few years we’ll have abundant supplies of gas. But after that, we see a decline, meaning that supply and demand will be balanced over the next 25 years.
Secondly, gas industries in all countries will require significant investment. This is particularly important because depressed prices and economic recessions have decreased the appetite for investments in recent years.
This work also shows that GECF members are in a position to maintain a large share of the global gas trade because they are low-cost gas producers.
Finally, natural gas needs to play an important role in reducing greenhouse gas emissions in the aftermath of the COP21 climate change conference.
Discussions and debates
Several audience members had competition on their mind: competition between gas and renewables, competition between gas and coal in the power generating sector, and competition between American LNG and Russian pipeline gas.
It’s true that there has been a huge increase in investments in renewables in recent years. But it’s a fashionable investment, done in many countries to diversify their energy mix. Gas, oil and coal will be the dominant energy sources over the next 25 and even 50 years. Renewables will not really pose any challenge or threat to gas.
Meanwhile, it’s true that some countries are investing in coal. They typically fall into two categories. Some, such as Japan, claim to have new technology that emits less CO2 and are investing in coal for diversification and supply security reasons. Others, such as India, say they are bound to invest in coal because their need for energy is huge and cannot be met by oil and gas either because they cannot afford these alternatives or because they have cheap iron ore inside their country. Globally, however, coal is in decline and losing ground.
On the subject of competition between the U.S. and Russia, most American LNG goes to Latin America and, to a lesser extent, Asia. The U.S. is not a big player in Europe. That may change, but one also has to consider that Australia will bring considerably more LNG to market in the coming years.