By the mid-2020s, coal will be supplanted by natural gas as the largest source of U.S electricity generation and by the mid-2030s, gas will overtake oil as the most utilized fuel in the nation's primary energy mix, the International Energy Agency (IEA) forecast Tuesday.
The global energy watchdog in its flagship World Energy Outlook 2015 (WEO) this year offers insight not only into supply-demand scenarios for all of the world's energy resources, including renewables, but an analysis about the plunge in oil prices and what that means for energy security going forward. Like last year, the WEO sees natural gas as the world's most in-demand fuel to 2040 (see Daily GPI, Nov. 12, 2014).
The worldwide outlook for natural gas supply and demand mostly is optimistic, but concerns about methane emissions and their impact on the environment are growing, researchers said.
"There are good reasons to be upbeat about the future for natural gas: its relative abundance; its environmental advantages compared with other fossil fuels; the flexibility and adaptability that make it a valuable component of a gradually decarbonizing electricity and energy system," researchers said. "But there are also clouds on the horizon: the flip side of its versatility is that natural gas faces strong competition in all segments of the market where it is used."
Gas is much more expensive to transport than other fossil fuels because of its low energy density, exacerbating the competitive challenge in markets dependent on long-distance imports. And while resources are distributed widely, a big portion of the resource base is in unconventional gas. Unconventional gas has been developed extensively in parts of North America and Australia, but it "appears to be off-limits in a number of other countries because of a lack of public acceptance."
Whether gas actually holds an environmental advantage also is under scrutiny because of the impact of methane emissions from gas production and transport. Water issues associated with unconventional gas development also are under the microscope.
However, in every WEO scenario, global gas demand is projected to increase. In the New Policies Scenario, gas consumption expands worldwide on average by 1.4%/year, more rapidly than oil and coal, but more slowly than renewable energy and nuclear power. The share of gas in the energy mix increases to 24% in 2040 from 21% in 2013, the only fossil fuel to see an increase.
Gas growth in the New Policies Scenario contrasts sharply, however, with the trajectory for gas in the WEO's 450 Scenario, where consumption expands until the latter part of the 2020s. Gas demand then flattens out "as a consequence of policies aimed at limiting energy-related carbon dioxide (CO2) emissions." The Current Policies Scenario, where global energy consumption rises at the fastest pace, gas demand is up about 460 bcm (16.24 Tcf) above the New Policies Scenario in 2040.
The United States today is the largest gas-consuming country and, although the market is mature, "demand growth has continued to impress, rising by around 14% since 2009," the report said. The WEO is predicting that U.S. demand will rise by 0.5%/year on average between 2013 and 2040, reaching 850 bcm (30 Tcf) by the end of the projection period.
In BP plc's annual Energy Outlook 2035, which most recently was issued in February, U.S. natural gas is forecast to replace domestic oil as the leading fuel in energy consumption around 2028, increasing from 30% today to nearly 38% in 2035 (see Daily GPI,Feb. 17). In its annual energy outlook issued last December, ExxonMobil Corp. said North American gas production is projected to increase by about 75% from 2010 to 2040 to about 140 Bcf/d (see Daily GPI,Dec. 9, 2014).
"The increase is more rapid over the period to 2020, at 1.1%/year" because current low gas prices extend its use in place of coal in the power sector, as well as the rise in gas-intensive petrochemical activities. "Growth is slower in the latter part of the projection period, as a result of a gradual anticipated rise in the wholesale price and saturation in industrial gas consumption." Domestic power generation is seen accounting for about half of the overall rise in U.S. gas demand through 2040, boosted by implementation of the Obama administration's Clean Power Plan.
The biggest gains in gas use in the United States, albeit from a low base, are expected in the transportation sector, rising about 3.5% annually, "with road transport consumption accounting for 90% of the 40 bcm (1.41 Tcf) increase in the sector."
In the New Policies Scenario, inter-regional liquefied natural gas (LNG) supply increases by more than two-thirds to 2040, with an average rate of annual growth of 2%. "LNG export from North America plays a major role not only in buttressing supply, but also in its increasing flexibility -- export commitments made thus far for the U.S. projects are entirely free of the destination clauses that have hampered the responsiveness of LNG trade to short-term changes in the global gas balance. Greater shares of LNG in major energy companies' portfolios are also encouraging a more adaptable approach to long-term LNG supplies, away from the highly rigid delivery system model seen in the past, toward more short- and medium-term sales."
For global oil, an extended period of low oil prices will benefit consumers, but it also triggers energy security concerns "by heightening reliance on a small number of low-cost producers, or risk a sharp rebound in price if investment falls short," the report said. In the WEO's Central Scenario, tightening oil markets worldwide should lead to prices rising to around $80/bbl Brent by 2020. There are conditions under which oil prices could stay lower for much longer, however.
Developing Asia, a region in which India takes over from China as the largest source of energy consumption growth, is the leading demand center for every major element of the world's energy mix in 2040: natural gas, oil, coal, renewables and nuclear. By 2040, China's net oil imports are nearly five times those of the United States, while India's easily exceed those of the European Union.
"It would be a grave mistake to index our attention to energy security to changes in the oil price," said IEA Executive Director Fatih Birol. "Now is not the time to relax. Quite the opposite: a period of low oil prices is the moment to reinforce our capacity to deal with future energy security threats."
The report also underlines that the single largest energy demand growth story of recent decades is near its end. China's coal use reaches a plateau at close to today's levels as its economy rebalances and overall energy demand growth slows, before declining. India moves to center stage in global energy.
Also rapidly rising are renewables, which contributed almost half of the world's new power generation capacity in 2014 and have already become the second-largest source of electricity after coal, researchers said.
"Renewables are set to become the leading source of new energy supply from now to 2040. Their deployment grows worldwide, with a strong concentration in the power sector where renewables overtake coal as the largest source of electricity generation by the early-2030s. Renewables-based generation reaches 50% in the European Union by 2040, around 30% in China and Japan, and above 25% in the United States and India."