The global natural gas markets still are struggling with the aftermath of the commodity price collapse in late 2014, but low gas prices “spur competitiveness and provide market opportunities,” leading to a positive outlook for demand, particularly for price-sensitive emerging markets, Statoil ASA said Thursday.

The Norwegian-based supermajor, which has U.S. onshore and North American oil and gas projects, in its annual Energy Perspectives 2017 report to 2050, Statoil offered an upbeat macro and market outlook for gas over at least the next decade, as liquefied natural gas (LNG) exports increase and markets expand. Chief economist Eirik Waerness oversaw the report, which was coordinated by the company’s macroeconomics and market analysis unit.

“Possible future outcomes for global energy demand and fuel mix therefore vary significantly, depending on many interacting and very uncertain factors,” Waerness said. “This is particularly true when we look beyond the near future toward 2050…All the scenarios are possible.”

North America’s abundant gas supply enables growth within the market into the 2020s, according to Statoil.

“Current resource assessments suggest that North America has a very flat supply curve. There are known resources which could provide rising gas supply in North America through the 2020s without significantly raising costs.” Rising domestic demand across North America, from the energy sector in Canada, industrial and power growth in Mexico and the United States, is expected to capture most of the growing supply.

Reform, Renewal, Rivalry

Statoil reviewed all fossil fuels and the renewables sector using three scenarios: Reform, Renewal and Rivalry. Reform, the central scenario, uses current energy trends and, in climate policy terms, the landmark Paris agreement, with a gradually less prevalent role for market-correcting policies to deliver efficiencies and low-carbon technologies. Renewal is about what is technically possible, while Rivalry “is a story about a multipolar world, characterized by mounting distrust in conventional politics and policymaking, populism, protectionism and geopolitical conflict, and where focus on security of supply and other priorities overshadow global climate targets.”

According to Statoil, North American natural gas demand continues to grow through the 2020s in all scenarios except in the Renewal scenario, where gas demand begins to wane.

“Gas is not likely to play a major role in the transformation of the transport sector, and changes in the residential and commercial markets are expected in later decades,” the report said. “However, the difference between the three scenarios primarily plays out mostly in the electricity market, with new renewables growing their market shares significantly relative to gas in Renewal, and gas keeping its market share in Reform and Rivalry.”

Within the Organisation for Economic Co-operation and Development (OECD) Americas in the 2020s, coal use is seen declining while renewables grow in all three scenarios.

“Market competition favors gas over coal in North America in all scenarios,” Statoil said. “Carbon policy also affects the gas versus coal competition — stricter policies mean a bigger impact on coal.” In the Renewal scenario, gas “plays the role of the marginal energy source, filling in the gap left by other sources.”

In North America, residential and commercial space heating and cooling markets “are likely to start to change” during the 2020s, as policies to improve housing and commercial building energy efficiency “begin to play a role, while homeowners and building managers increasingly invest in more efficient designs. This process begins to bear fruit in the 2020s.”

For the OECD Americas in the 2020s, “gas demand is highest under Rivalry, lowest under Renewal. The loss of power sector market share to renewables under a strong carbon regime pushes gas from growth to decline in Renewal. Rivalry, by comparison, allows gas to gain at the expense of coal, and gas faces little competition from solar and wind just yet.”

Europe a Fallback for Flexible LNG Volumes?

The startup of U.S. LNG exports are being “watched with interest,” as Europe may serve as a fallback destination for flexible volumes, according to the report.

“New LNG liquefaction capacity entering the market will alter global supply dynamics as Asia struggle to absorb additional volumes,” while increased exports for Europe “will create further supply competition from other import sources…The structure of supply contracts is evolving as sellers move away from oil indexation toward more gas hub pricing mechanisms and increased selling at national hubs.”

Into the 2020s, Statoil expects world gas demand to increase in all three scenarios. ExxonMobil Corp. in its an annual outlook issued last December, and BP plc, which is scheduled to issue its 2017 outlook on Tuesday (June 13), each expect gas supplies to swamp coal, with LNG becoming an increasing share of the global market.

In Statoil’s Reform and Rivalry scenarios, the size of the global gas market increases by 400 billion cubic meters (bcm) (11-12%) over the 2020s, whereas Renewal sees little growth in demand over the same period, with growth concentrated in China, India, the Middle East and Africa.

“Depending on the scenario, the Asia Pacific basin remains the target demand area for new LNG as well as large scale pipeline projects through the medium-term period.”

Through the medium-term horizon, the global gas market is expected to be supplied by four main regions: the United States, Russia, Australia and the Middle East. Uncertainty may pose “significant challenges to producers chasing final investment decisions (FID) for new gas projects, both in regions such as North America and East Africa. Still, energy hungry markets require energy; but price matters.”

LNG is expected to account for about half of globally traded gas by 2035, compared to about 30% in 2015, as gas markets structurally integrate and supply from seaborne dependent exporters increases. The United States “will gradually provide a price anchor for global gas prices, as its sourcing flexibility and hub-indexed LNG supply becomes the provider of marginal supply between the Pacific and Atlantic basins. Henry Hub based U.S. cargoes will contribute to the maturing of the Asian LNG market.”

New LNG Investments Uncertain

While low global gas prices support demand, they are not allowing LNG producers to cover full costs, which creates “large uncertainties” for potential new investments.

“Gas balances in Reform signal a need for new LNG capacity, and thus, up to 100 bcm of new LNG capacity is forecasted to support underlying demand growth during the second half of the 2020s,” according to the report. “However, there is a risk that low oil and gas prices, uncertain demand and cost levels (still regarded as unsustainably high) risk delaying FIDs for new greenfield development projects.”

Gas projects that are lower cost and potentially smaller will be prioritized, said Statoil.

“Low-cost supply is what the market needs, whereas recent new mega-projects are struggling at the opposite end of the supply cost curve.” Qatar, the world’s largest LNG exporter, has relaunched the North Field, signaling a strategic return to ensure its medium-term market position. Meanwhile, the United States “is well positioned with cheap feed gas, but new projects must provide for return on full capital investments and not only the variable costs.”