Supported by broad-based demand, increases in low-cost supply and expanding export trade, natural gas is expected to grow strongly worldwide to 2040, although the once turtle-like growth of renewables will be transformed into a hare by then, BP plc is forecasting.
BP and its economics researchers annually provide a global energy outlook that explores the forces shaping the transition 20-plus years out and the key uncertainties surrounding the transition. The BP Energy Outlook, 2018 edition, shows how rising prosperity is driving an increase in global energy demand and how that demand may be met over the coming decades through a diverse range of supplies including oil, natural gas, coal and renewables.
Group chief economist Spencer Dale and CEO Bob Dudley unveiled the latest forecast on Tuesday during a webinar from London.
“We project that the U.S. becomes energy self-sufficient in the early 2020s and maintains its position as the world’s largest producer of liquid fuels and natural gas,” Dale said.
Natural gas is expected to become the leading U.S. fuel by 2040, accounting for 40% of domestic energy consumption, from 32% today.
Renewables in the United States are seen capturing a 17% share of energy demand by 2040, and they also are seen with increased market share. Coal is expected to account for only 5% of U.S. market share, while oil’s share falls to only 30% in 2040.
U.S. gas production to 2040 is seen increasing to 118 Bcf/d, up by 46 Bcf/d. The United States also should remain the largest producer of liquid fuels. Oil production also is expected to increase.
Renewables quickly are gaining in the United States and should see the “largest growth increment of any fuel,” up by 5% a year to 2040. Renewables should surpass coal as the second-largest U.S. source of power generation by fuel input around 2030.
“Domestic energy production increases by 39%; growth in natural gas (65%), oil (55%) and renewables (220%),” which more than offset declines in coal (down 48%) and nuclear power (down 28%) through the forecast period.
In BP’s “evolving transition” (ET) scenario for natural gas, Dale said growth is supported by several factors:
More industrialization and power demand in developing nations;
Continued coal-to-gas switching, especially in China; and
Increasing availability of low-cost supplies in North America and the Middle East.
The United States, along with Qatar and Iran, are expected to contribute more than half of the incremental gas production by 2040. And by that time, the United States in the ET scenario is seen accounting for almost 25% of global gas production, ahead of the Middle East and the Commonwealth of Independent States (CIS), the alliance of countries that used to form the Soviet Union. The Middle East and the CIS each are expected to account for around 20% of global gas output in 2040, according to the ET scenario.
For global liquefied natural gas (LNG), supplies should more than double over the outlook period, with around 40% of the expansion seen occuring in the next five years.
“The sustained growth in global LNG supplies greatly increases the availability of gas around the world, with LNG volumes overtaking inter-regional pipeline shipments in the early 2020s,” Dale said. In the ET scenario, gas growth “is supported by increasing levels of industrialization and power demand, particularly in emerging Asia and Africa.”
BP anticipates global LNG supply to continue to expand rapidly, leading to a more competitive globally integrated market.
“In the ET scenario, LNG more than doubles over the outlook,” Dale said. “Much of that growth is concentrated over the next few years as a number of existing projects are completed, followed by slower increases over the remainder of the outlook.
U.S., Qatar Dominate LNG Exports
LNG exports are to be “dominated by the U.S. and Qatar, which account for almost half of global LNG exports by 2040. But material increases are also projected in Australia as existing projects are completed, Russia, and East and West Africa.”
Increased accessibility and competitiveness of gas associated with LNG should help to develop new markets and expand others, “led by China together with some smaller Asian countries, such as Pakistan and Bangladesh. Europe remains a key market, both as a potential ‘market of last demand’ for surplus LNG cargoes and as a key hub of gas-on-gas competition between LNG and pipeline gas.”
Dale also noted that the mobility of LNG cargoes and their ability to be diverted in response to price signals will lead the gas market “to become increasingly integrated, with movements in global gas prices becoming more synchronized.”
There is a question of whether Asia will provide a significant bucket for U.S. LNG volumes.
“A comparison of total Asian LNG imports with LNG exports from regions which are closer to Asia than the U.S. and so have lower shipping costs, suggests that, in principle, there may be relatively little need for Asia to import LNG cargoes from the U.S.,” Dale said.
However, in practice, LNG sellers and buyers see value in portfolio diversification, “and so significant quantities of U.S. LNG are likely to be exported to Asia.”
Most of the gas demand growth over the outlook period is to be led by gains in industry and the power sector. In the ET scenario, growth in industrial use of gas (55 Bcf/d) is supported by continued industrialization in developing economies, together with gas gaining share as some countries in both industrialized and developing nations switch from coal.
“The increase in gas used by the power sector (59 Bcf/d) is driven by the overall growth in global power demand,” said BP’s forecast. However, the “competing trends” in renewables and coal demand could mean the share of gas within the power sector remains “relatively flat” over the outlook period.
“The fastest rate of growth of gas demand is in the transport sector as gas is increasingly used in trucking and maritime,” according to the ET forecast. “Although the increase in transport demand is small in absolute amount (11 Bcf/d), the share of gas within transport increases to almost 5% by 2040.”
Under BP’s alternative energy scenario, gas growth could slow if “policies prompting coal-to-gas switching weaken.”
As Dale explained, one way of analyzing the projected growth in gas is to separate it into two components: growth because of fuel switching and growth caused by “other effects,” mainly economic growth.
“In the ET scenario, around half of the growth in gas is due to switching,” Dale said. “Some of this switching is driven by the increasing availability of low-cost gas” in the United States and Middle East, and some is because of policy measures prompting a shift to lower carbon fuels.
“One risk to the prospects for natural gas is that these environmental policy measures are less stringent than envisaged in the ET scenario,” Dale said. “Weaker or stronger environmental policies could dampen gas demand.”
A weaker policy could reduce the shift from coal to gas, while stronger policies could encourage more renewables and energy efficiencies.