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Natural Gas to Lead as Fossil Fuels Dominate Global Energy Mix Through 2040, Say Exporters

As liquefied natural gas (LNG) expands its share of global trade, the world’s gas demand will grow at the fastest rate among fossil fuels through 2040, according to a recent report from the Gas Exporting Countries Forum (GECF).

In its 2018 Global Gas Outlook, published late last week, GECF said based on projected population growth world energy demand is forecast to rise 1%/year through 2040, down from a growth rate of 2%/year since 2000 because of increased energy efficiency.

Fossil fuels are projected to continue dominating the global energy mix, but with their share declining from 81% to 76% over the outlook period, with 2.1% annual growth in demand for non-fossil fuels outpacing 0.7% growth for fossil fuels.

The GECF, established as a “fully fledged” intergovernmental organization in 2008, includes 12 members: Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad and Tobago, the United Arab Emirates and Venezuela. GECF’s seven “observer members” are Azerbaijan, Iraq, Kazakhstan, the Netherlands, Norway, Oman and Peru.

The GECF’s outlook mirrors recent forecasts from the International Energy Agency (IEA), BP plc and Royal Dutch Shell plc.

Gas Share Rising To 26% In 2040

Natural gas should see its share of the global energy mix rise to 26% from 22% by 2040, displacing other fuel sources across a “range of sectors,” driven by policies focused on improved air quality.

GECF projects that natural gas consumption will rise to 5,427 billion cubic meters (bcm) in 2040 from 3,709 bcm in 2017. The Asia Pacific, North America, the Middle East and Africa are expected to lead growth in gas demand, with North America (particularly the United States) and Asia Pacific (particularly China) accounting for 52% of global gas consumption in 2040.

By sector, power generation demand is expected to grow 2.2% annually, with industrial demand rising 1.2%/year. The transport sector is poised to “emerge as a significant new area” of gas demand, projected to increase 160% to reach 357 Bcm by 2040.

GECF said it expects the global natural gas market structure to remain “geographically segmented” through 2040 “despite some integration post-2025 driven by the construction of infrastructure.

Short-term price differences between regional markets could be eliminated” through liquefied natural gas (LNG) shipments, but this would require “price differences of over $5-6/MMBtu depending on transport costs, as well as supply and demand balances.

“In the longer-term, increased pressure from energy transition and power mix substitution along with a lack of new projects in the medium-term is expected to drive prices significantly higher across all regions.”

Global LNG Capacity Rising Sharply

The “rapid expansion” of global LNG capacity starting in 2016 and continuing until 2025 will help drive a larger share for gas exports in the global market, increasing from 41.5% to 45.3% by 2030 and 47.6% by 2040. LNG should see its share of global trade grow 2.2%/year during the outlook period, with pipeline trade expected to grow more slowly at an annual rate of 1.1%.

As the Energy Information Administration (EIA) noted recently, the United States is a key player in the recent global LNG expansion. EIA said U.S. LNG expansions will make it the world’s third largest exporter by capacity by the end of 2019. U.S. LNG vanguard Cheniere Energy Inc. announced this week that its first commissioning cargo from its greenfield Corpus Christi facility in South Texas has set sail.

“By 2040, we expect the largest additional import demand for natural gas to come from Asia Pacific and Europe, with a total increase of over 300 bcm and 150 bcm respectively,” GECF said. “As of now, 27 countries are net exporters of natural gas, but up to 35 countries could become net exporters by 2030 and hold that status through to 2040, with many African countries among them.

“To meet the growing demand for natural gas and avoid energy crises by 2040, there is a need to invest $7.9 trillion in additional natural gas production capacity and gas trade infrastructure.”

Policy drivers should benefit natural gas during the forecast period, including supply-side measures promoting access to resources and demand-side measures such as emissions standards, carbon pricing and mandated fuel switching, according to GECF.

World To Miss CO2 Mitigation Targets

GECF’s outlook sees the world missing the climate change mitigation targets laid out in the 2015 Paris Agreement “by some margin, with coal and oil representing around 72% of emissions by 2040. Increased gas use can contribute to closing the gap between emissions” and the goal of preventing global average temperatures from rising more than 2 degrees C above pre-industrial levels, according to GECF.

According to the latest data from the IEA, carbon dioxide emissions from the world’s advanced economies grew in 2018 after declining annually during the previous five years.

GECF expects oil and coal to see their respective shares of the global energy mix fall during the outlook period, with oil projected to slip from 32% to 29% and coal expected to drop more sharply from 27% to 21% amid environmental concerns as demand in the Asia Pacific region offsets coal-generating capacity phased out in North America and Europe.

GECF said it expects the global economy to expand 3.4% per year from 2018-2040, including annual growth of 1.9% for developed countries and 4.3% for developing countries. Current trade policies for the United States present downside risks for global growth, the group said.

“Given the number of recent policy initiatives in European countries, China and India, as well as from global industry leaders, electric vehicles are expected to receive most policy support and investment at the expense of internal combustion engines powered by petroleum products,” GECF said.

“The natural gas vehicle fleet is expected to grow, especially in the medium-term, as the air quality policies in several developing countries are enacted. Natural gas demand will increase as electricity demand from the growing electric vehicle fleet rises.

“Changes in how the mobility sector is powered, unlocked by technological improvements, will impact demand closer to 2040, although transport energy demand still peaks at 2035.”

On the supply side, GECF expects global natural gas production to rise 1.7%/year through 2040, with North America expected to be the largest contributor, rising to 28% of global output during the period. Led by the United States, North America “already accounts for more than one-quarter of global gas production, and the region’s output is set to grow” 2%/ to 2040.

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