North America's natural gas supplies are enough to keep it self sufficient -- but not in the long run. By 2030, North America will emerge as a major liquefied natural gas (LNG) importer, according to the International Energy Agency (IEA), which has released its 2006 World Energy Outlook (WEO). By 2030, LNG imports will meet 16% of total gas needs worldwide, and North America is expected to become the largest importer in the next 25 years.
The IEA, which acts as an energy policy adviser for 26 countries including the United States and Canada, unveiled the 2006 WEO report on Tuesday. Among other things, the WEO is forecasting primary gas consumption to increase in all regions around the world between 2004 and 2030, from 2.8 trillion cubic meters (Tcm) in 2004 to 3.6 Tcm in 2015 and 4.7 Tcm in 2030.
The average annual rate of gas production growth between 2004 and 2040 will be 0.4% in North America, according to the WEO. Supply from indigenous sources in North America -- even if the Alaska pipeline is built -- is "nonetheless not expected to keep pace with demand over the projection period. We expect total U.S. gas production to level off after 2015, leading to higher imports -- mostly in the form of LNG..."
Most gas supplies worldwide will continue to come from conventional sources over the next 25 years, while the share of associated gas is expected to fall progressively as more nonassociated fields are developed to meet rising demand. However, nonconventional gas production, including coalbed methane (CBM) and gas extracted from tight sands and shale formations, will increase "significantly" in North America. The United States is already the biggest producer of nonconventional gas, mainly tight sands and CBM from the Rockies. Together, they account for about one-quarter of total U.S. gas output.
Over the tracking period, the WEO is forecasting the highest gas consumption growth will be in the Middle East and in Africa, both at 4.5%, followed by Latin America, 4.1% and Developing Asia, 2.7%. Globally, gas demand will grow by an average of 2% a year, below the 2.6% rate between 1980-2004 and slightly below a rate projected by the WEO in 2005.
"The biggest increase in volume terms occurs in the Middle East, though demand rises at a faster rate in China, India and Africa. North America and Europe remain the largest markets in 2030. The power sector accounts for more than half of the increase in global primary gas demand."
Increasing gas-to-gas competition between now and 2030 will put downward pressure on gas prices relative to oil prices in some markets, but this is expected to be offset to some degree by rising supply costs -- notably in North America and Europe. Increased short-term trading in LNG, allowing arbitrage among regional markets, is expected to contribute to the convergence of regional prices over the period.
Overall global energy needs are expected to jump by 53% over the next 25 years, with crude oil prices exceeding $100/bbl by 2030. Gas prices will "broadly" follow the trend in oil prices in the years to come because of the continuing widespread use of oil-price indexing in long-term gas supply contracts and because of inter-fuel competition in end-use markets. Some divergences in oil and gas prices and between gas prices across regions are expected.
According to the WEO, gas will continue to be traded on a largely regional basis over the period because there are "few physical connections now between the main regional markets of North America, Europe, Asia-Pacific and Latin America. But these markets are set to become more integrated as trade in LNG expands. This will open up opportunities for arbitrage, leading to a degree of convergence of regional prices."
Cumulative investment in gas-supply infrastructure will amount to $3.9 trillion between 2005 and 2030. Capital needs will be highest in North America, where most spending will be directed to maintaining current capacity. The upstream overall will absorb 56% of global spending. "Most of the investment to 2010 is already committed. Thereafter, it is far from certain that all the investment needed will, in fact, occur."
The WEO also reported that in general, the share of transportation in total supply costs is likely to rise as reserves located closest to markets are depleted and supply chains lengthen.
"Technology-driven reductions in unit production and transport costs could, however, offset the effect of distance on total supply costs to some extent," the report noted. "Pipelines will remain the principal means of transporting gas in North America, Europe and Latin America. Yet, LNG is set to play an increasingly important role in gas transportation worldwide over the projection period, mainly to supply Asia-Pacific and Atlantic Basin markets."
For more information on the report, visit www.iea.org.
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