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Global gas demand growth

A News Feature

Gas: the fastest-growing fossil fuel

By William Powell, Lucie Roux

Ten years ago, not many would have questioned the dominant role of gas as a clean and affordable fuel for power generation. While that is no longer the case in Europe, it is gaining ground in the Americas and Asia.

Natural gas is the fastest growing fossil fuel, with demand rising at the rate of 1.9%/year over the next two decades to reach 490 Bcf/d while oil falls to just 0.8%/yr, according to BP's annual Energy Outlook published February 17.

The figure for gas demand growth is close to that forecast by French consultancy Cedigaz, which sees it rising by 1.8%/yr, with power demand accounting for most of that, in its own Medium and Long Term Natural Gas Outlook, published February 13.

Cedigaz warns against complacency, however: "The future expansion of natural gas should not be taken for granted. Increased competition with coal in the power sector will need to be addressed while maintaining a gas price at a level compatible with the development of large capital-intensive projects. Only by resolving this conundrum can natural gas fully live up to expectations," it says.

But even oil grows faster than coal as industrialization slows in Asia whilef elsewhere - notably the US and the European Union - the effects of environmental regulations and low gas prices in key markets take market share away from coal.

According to BP, by 2035 all the fossil fuel shares are clustered around 26%-28% with no single dominant fuel - a first since the Industrial Revolution. Fossil fuels in aggregate lose share but remain the dominant form of energy in 2035 with a share of 81%, down from 86% in 2013.

Among non-fossil fuels, renewables and biofuels gain share rapidly, from around 3% today to 8% by 2035, overtaking nuclear in the early 2020s and hydro in the early 2030s. Roughly a third of the risee in energy demand is provided by gas, another third by oil and coal together and the final third by non-fossil fuels.

Analysis continues below...

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In the OECD, declines in oil and coal are offset by increases in gas and renewables, in roughly equal parts.

The growth of US tight oil and shale gas is supported by rising investment and rapid technological innovation.

Productivity, as measured by new-well production per rig, rose by 34%/yr for oil and 10%/yr for gas between 2007 and 2014.

Growth in US tight oil is expected to flatten out in coming years, reflecting high well decline rates and less extensive resources than gas.

Regional gas demand prospects

Growth is driven by non-OECD demand, which grows 2.5%/yr, adding 123 Bcf/d. OECD grows more modestly at 1.1%/yr, adding 42 Bcf/d.

Power and industry account for over four-fifths of total demand growth, with power showing the largest gain of 75 Bcf/d (2.3%/yr), followed by industry growing by 61 Bcf/d (1.8%/yr).

In the non-OECD, power and industry add almost 50 Bcf/d each to demand. In the OECD, growth in power sector demand (25 Bcf/d) is more than twice that of industry (12 Bcf/d).

Transport is the fastest growing sector, albeit from a very small base, with its share of total natural gas consumption rising to 3% by 2035.

Around half of the increase in global gas supply comes from non-OECD conventional gas (82 Bcf/d or 1.5%/yr), driven in particular by the Middle East and Russia.

Almost 80% of non-OECD growth is from nonshale sources.

OECD shale gas grows much faster at 5%/yr, adding 52 Bcf/d and accounting for around a third of the increase in global gas supply to 2035.

Shale gas production is dominated by North America, which will account for around three-quarters in 2035.

The growth of shale gas means North America will switch from being a net importer to a net exporter in the next few years.

China is the most promising country for shale outside North America, accounting for 13% of the increase in global shale gas.

By the end of the period covered by the Outlook, China and North America account for around 85% of global shale gas production.

Net inter-regional imbalances more than double by 2035.

Growth in gas traded across regions accounts for around a third of the rise in total gas demand.

Next: LNG supply growth

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