A major transformation of the global natural gas market is underway, driven by new supplies coming from the United States to meet growing demand in developing economies and as industry surpasses the power sector as the largest source of gas demand growth, according to the International Energy Agency (IEA).
In its latest market analysis and five-year-forecast for natural gas, “Gas 2017,” the global energy watchdog said the role of natural gas in the global energy mix is evolving, creating far-reaching consequences on energy trade, air quality and carbon emissions, as well as the security of global energy supply.
The United States, the world's largest gas consumer and producer, is expected to account for 40% of the world's extra gas production to 2022 because of the remarkable growth in the domestic shale industry. The United States also is seen challenging Australia and Qatar as the world’s largest liquefied natural gas (LNG) exporter.
“By 2022, U.S. production will be 890 billion cubic meters (bcm), or more than a fifth of global gas output,” IEA researchers said. That translates to 2.92 Tcf.
"The U.S. shale revolution shows no sign of running out of steam and its effects are now amplified by a second revolution of rising LNG supplies," said IEA Executive Director Fatih Birol. "Also, the rising number of LNG consuming countries, from 15 in 2005 to 39 this year, shows that LNG attracts many new customers, especially in the emerging world. However, whether these countries remain long-term consumers or opportunistic buyers will depend on price competition."
U.S. LNG is seen as the catalyst for change in the international gas market, diversifying supply, challenging traditional business models and suppliers, and transforming global gas security, according to IEA.
“A new wave of liquefaction capacity is coming online at a time when the LNG market is already well supplied,” researchers noted. “This LNG glut is already affecting price formation and traditional business models -- and attracting new LNG-consuming countries like Pakistan, Thailand and Jordan.”
At the same time, ample LNG availability is creating new competition with pipeline gas supplies, which could benefit consumers.
“This intense competition is loosening pricing and contractual rigidities that have traditionally characterized long-distance gas trade,” researchers said. “The change will be accelerated by the expansion of U.S. exports, which are not tied to any particular destination and will play a major role in increasing the liquidity and flexibility of LNG trade.”
Europe could see growing competition between LNG imports and pipeline gas as domestic production declines, creating extra uncertainty on the sources of future supply.
The recent standoff involving Qatar, which supplies about a third of the world's LNG, and neighboring countries has also underscored potential risks to gas supply security.
"Even in a well-supplied market, recent events remind us that gas security remains a critical issue." Birol said.
Increased U.S. supply in part is to be fueled by the Marcellus Shale, considered one of the world’s largest fields, where output is expected to increase by 45% between 2016 and 2022, “even at current low price levels, as producers increase efficiency and produce more gas with fewer rigs.”
While U.S. domestic demand for gas is growing in part on higher consumption by the industrial sector, more than half of the production increase is seen being used for LNG. By 2022, the IEA estimated that the United States will be on course to challenge Australia and Qatar for global leadership among LNG exporters.
Global gas demand overall is expected to grow by 1.6% a year for the next five years, with consumption reaching almost 4,000 bcm by 2022, up from 3,630 bcm in 2016. China is seen accounting for 40% of this growth.
“Demand from the industrial sector becomes the main engine of gas consumption growth, replacing power generation, where gas is being squeezed by growing renewables and competition from coal,” researchers said.
"The environmental advantages of natural gas, particularly when replacing coal, also deserve more attention from policymakers,” Birol said.