Global Natural Gas Demand Set To Exceed 4.3 tcm by 2024
Alexander Ermakov – Energy Econometrician, EEFD
Starting from 2017, the Gas Exporting Countries Forum (GECF) has been producing the GECF Global Gas Outlook (GGO) on an annual basis. This publication provides a quantitative assessment of the impact of macroeconomic conditions, energy policies, prices and investment decisions on the development of natural gas markets. Despite the GGO’s focus on mid- and long-term projections, we also monitor the most likely short-term trends to evaluate key challenges and uncertainties facing natural gas.
Undoubtedly, last year was a remarkable year for energy and particularly for natural gas. According to the GECF Global Gas Model (GGM), total primary energy demand in 2018 increased by 2.5% (or nearly 355 Mtoe), the fastest pace since the post-crisis rebound of 2010. Energy consumption grew for all fuels, but the largest contribution came from natural gas, accounting for more than 40% of the rise in energy demand.
BP called 2018 a «bonanza year for natural gas», the IEA – «another golden year of natural gas». Indeed, after a 3.7% gain in 2017, global natural gas demand surged by an astonishing 4.5% in 2018. This second consecutive year of strong increase was almost three times higher than the 2010-2016 trend of an average 1.7% rise. Nevertheless, the GECF expects natural gas demand to decelerate to about 1.6% per annum through to 2024. To explain this forecast, first of all, it is worth analyzing the 2018 results.
In 2018, natural gas consumption increased by almost 170 bcm - driven by economic growth, environmental policies encouraging coal-to-gas switching and weather-related effects. The US (83 bcm) and China (35 bcm) were responsible for the lion’s share of this increase. However, whereas the rise in gas demand in the US was pulled by power generation requirements and strong needs for residential sector due to unusual winter and summer weather conditions, China’s gas consumption growth stemmed mostly from coal displacement in the industrial and domestic sectors to battle air pollution, accompanied by the increase in economic activity.
Other major contributors to the 2018 gas demand growth were Russia – supported by the incremental increase from the gas-intensive industrial sector; Iran, with rising needs in power generation and petrochemical production; and South Korea due to nuclear reactor shutdown and limitation on coal generation.
The GECF assumes that such a significant increase as observed in 2018, is unlikely to be a new normal in the future. The main reasons are the slower economic growth, particularly in China, and the return to average weather conditions. Moreover, the growing level of non-typical weather-related gas consumption, especially in the US, ensured a high starting base for future projections.
Other factors, which are also not in favour of the strong natural gas demand growth to 2024, include greater penetration of renewables and efficiency gains for space heating purposes in Europe, the scale-up of solar and wind capacity in the Asia Pacific region as well as the commissioning of two nuclear reactors in South Korea. The ramp-up of nuclear power generation in Japan represents more uncertainty and could be even challenged until the Nuclear Regulation Authority provides more details concerning the counter-terrorism compliance status and shutdown risks. Nevertheless, in our forecast we consider the gradual restart of nuclear reactors and the increase of nuclear generation, entailing lower natural gas needs.
With a growth rate of 1.6% per year, global gas demand will exceed 4.3 tcm by 2024, corresponding to the overall rise of 10%. In terms of sectoral outlook, the power generation sector will continue to take the lead, providing more than 40% of gas increments, and will remain the largest natural gas consumer, accounting for 36% of total gas demand in 2024.
Asia’s developing markets are projected to be where the bulk of future gas demand growth will take place. According to the GGM, the Asia Pacific region will account for almost half of total gas additions, led by the Chinese government’s long-term goal to improve air quality. Among other Asian nations, India and Bangladesh will also contribute to the regional trend with the majority of incremental gas volumes concentrated in the power generation and industrial sectors, especially in fertilizer production, to serve the needs of a growing population.
Taking into account the slowdown of economic growth in China, gas demand increase in this country will continue to be relatively high, expanding by about 7% annually through to 2024, albeit at a slower pace compared with an average of 10.4% from 2012 to 2018. Ongoing switching in the industrial and domestic sectors will drive gas demand growth. However, natural gas could face obstacles in the power generation sector due to the strong competition from renewable capacity deployment as well as previously relaxed restrictions on coal-generation that are expected to sustain in the short-term. The continuation of the US-China trade war will also imply a certain risk deflecting China from robust gas demand growth.
As for other regions, the GECF projects that the US, Middle East, and Eurasia together will account for the majority (about 40%) of the rest of global natural gas demand growth through to 2024. Access to abundant domestic gas resources will support natural gas usage for power generation needs and industrial applications.
To recap, the GECF assumes that global natural gas consumption in 2024 will reach over 4.3 tcm, driven by growing Asian economies. Simultaneously, an annual growth rate of about 1.6% over the short-term period represents the pace of a rather conservative case scenario, as in addition to the abovementioned factors the geopolitical tensions remain elevated. Given all the economic, technical and environmental advantages of natural gas, it is crucial to develop fruitful dialogue between different actors – gas producers, consumers, investors and policy-makers – to enhance the position of natural gas in the energy mix, especially in these early stages of the energy transition.