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U.S. Gas Demand Forecast Sees Slow Growth to 2020

U.S. demand for fossil fuels -- natural gas, oil and coal -- will remain "exactly flat" to 2020, with only gas projected to grow at a rate of just 0.6% a year, according to a new report by McKinsey Global Institute (MGI).

In the report, "Averting the next energy crisis: The demand challenge," MGI examined global energy demand across a range of end-use sectors and energy supply across fuel types.

"Global energy demand grew at a rate of 3.1% a year between 2002 and 2007, but we expect a marked deceleration in the pace of growth in 2007 to 2009 to a rate of only 1.0% per annum in our moderate case," the authors said. Energy demand in developed economies is seen contracting 1.2% while growth demand in developing countries will slow to 1.5-2.2%.

Because of a "high uncertainty" about the future path of gross domestic product (GDP) in different regions of the world, the authors used both current mainstream GDP projections and a range of alternative scenarios. The "moderate" case projects a global GDP downturn "felt mostly in 2008 and 2009, and "then recovery in 2010."

In the moderate case, MGI assumes energy demand will experience a "short-term lull" in 2009 "but is likely to rebound sharply thereafter across all fuel types." The "severe" and "very severe" scenarios, which MGI said are consensus opinions by other forecasts, expect the global downturn to extend to 2012.

If the moderate recovery scenario comes to pass, the developing regions are expected to account for more than 90% of global energy demand growth to 2020, according to MGI. Most of the gains would be in the Middle East.

"We project that the United States will actually cut its per capita energy demand to 2020, partly reflecting action to boost the economy's energy productivity -- the level of output achieved from the energy consumed," the report stated.

The potential also exists, said the authors, for global liquids demand growth to outpace supply, laying the groundwork for a possible spike in natural gas and oil prices. "Although the supply of coal and gas appears to be sufficient to prevent long-term price inflation for these fuels, growth in the supply of oil will slow markedly."

Supplies of natural gas and coal worldwide "do not appear to be a constraint to demand growth," said MGI. "Although temporary imbalances may exist between now and 2020, "the overall long-term supply demand path looks relatively balanced."

To download the 150-page report, visit www.mckinsey.com.

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