Natural gas demand continues to grow faster worldwide than oil or coal, and the rapid expansion in liquefied gas exports soon will create an integrated market anchored by U.S. pricing, BP plc said Wednesday.

The 2017 edition of the annual BP Energy Outlook, which provides key trends for fossil fuels, renewables and carbon policy to 2035, was unveiled in London by Group CEO Bob Dudley and chief economist Spencer Dale. The “world will almost certainly turn out differently” than the outlook, Dale said, but the judgments presented “add real value” concerning the risks and uncertainty ahead.

Energy Sector Uncertainty Continues

To underscore how regarded the analysis is, and how closely BP, the No. 1 natural gas marketer in North America, is followed, the webcast drew close to 7,000 people, Dudley said.

“It continues to be a very, very fast-changing global environment and a challenging time for our energy sector,” the CEO told the audience. “Last year was notable for its unpredictability, and this year is promising to be more of the same,” as President Trump takes office, Great Britain prepares to leave the European Union and elections are scheduled across Europe this year.

“I am certain of this: we can expect a lot of talk about uncertainty coming from lots of different places around the world, and that applies to our energy sector,” Dudley said.

Most notable in this year’s outlook, said Dudley, is the continued, “gradual decarbonization of the fuel mix,” propelled by “rapid increases in renewable energy and the strong outlook for natural gas. “Globally, gas is set to “grow faster than oil or coal, with an anticipated 1.6% annual growth rate,” assisted by a rapid growth in exports mostly from the United States and Australia, and increasing access in emerging economies.

Shale Gas 66% of Supply Increase

The share of gas in primary energy is seen overtaking coal to be the second-largest fuel source by 2035.

“Shale gas production accounts for two-thirds of the increase in gas supplies, led by growth in the U.S.,” Dale said. “LNG growth, driven by increasing supplies in Australia and the U.S., is expected to lead to a globally integrated gas market anchored by U.S. gas prices.

Rising gas exports are revamping the traditional pipeline gateway and will overhaul the gas pricing structure worldwide, according to BP.

The main growth in gas is seen from China, the Middle East and the United States over the forecast period, with LNG playing a dynamic role.

“In China, growth in gas consumption outstrips domestic production, so that by 2035 imported gas comprises nearly 40% of total consumption, up from 30% in 2015,” Dale said. “In Europe, the share of imports rises from around 50% in 2015 to over 80% by 2035.”

LNG supplies should account for more than half of traded gas by 2035. Around one-third of the growth is seen over the next four years as a series of projects underway come onstream. ExxonMobil Corp., which like several other Big Oil companies also issues an annual energy outlook, said in December that North America would become the largest natural gas exporter by 2040 from growth in unconventional production, with oil exports predicted by 2025. Gas demand is expected to account for about 40% of projected growth in global demand.

Slight NGV Growth

Meanwhile, gas used for transportation also sees an uptick to about 5% from 3% over the period.

“It’s still small, but it’s increasing,” Dale said. “The key drawback for natural gas as to strongly compete is infrastructure,” or lack thereof. “As a result, most natural gas growth in the transport markets — marine and long-haul — is that property tends to move from the journey start at one point to end in another, and you don’t need lots of refueling. It’s strong in gas in those sectors, but a lack of broad infrastructure is keeping the market down in the United states. That’s the problem — a lack of infrastructure — which is why we don’t see stronger growth,” at least in BP’s base case, the most likely scenario.

Big changes, albeit gradual, are underway in oil transport. While demand is forecast to grow at an average rate of 0.7% annually, “this is expected to slow gradually over the period. The transport sector continues to consume most of the world’s oil with its share of global demand remaining close to 60% in 2035. However, “noncombusted” use of oil, particularly in petrochemicals, could emerge “as the main source of growth for oil demand by the early 2030s.”

Technology, Enviro Concerns Shift Demand

Oil demand worldwide also is seen growing through 2035, but only at an annual rate of around 0.7%. Oil demand today is triggered mostly by planes, trucks and vehicles, but that may not be the case within 20 years, Dale said.

“The possibility that the most important source of growth in oil demand in the 2030s won’t be to power cars or trucks or planes, but rather used as an input into other products, such as plastics and fabrics, is quite a change from the past,” the economist told the audience.

“The global energy landscape is changing,” Dudley said. “Traditional centers of demand are being overtaken by fast-growing emerging markets. The energy mix is shifting, driven by technological improvements and environmental concerns. More than ever, our industry needs to adapt to meet those changing energy needs.”

Overall global energy demand is forecast to increase by around 30% between 2015 and 2035, growth on average of 1.3%/year. However, energy demand is forecast to slow down more than the 3.4%/year rise expected in global gross domestic product, reflecting improved energy efficiency driven by technology improvements and environmental concerns.

Renewables, growing annually by around 7.6%, along with nuclear and hydro power, should account for half of the growth in energy supply over the next 20 years. All together, however, gas, oil and coal still would be the “main source of energy powering the world economy, accounting for more than 75% of total energy supply in 2035, compared with 86% in 2015.”

All of the demand growth for oil to 2035 is seen from emerging markets, with China accounting for half. Meanwhile, the transport sector should account for around two-thirds of the growth in oil demand. Within that transport demand, demand for car transport increases by around 4 million b/d, underpinned by a doubling in the global car fleet.

The number of electric cars is assumed to increase from 1.2 million in 2015 to around 100 million in 2035 — around 5% of the global car fleet. The outlook constructed two illustrative scenarios to consider the impact of the broader mobility revolution affecting the car market, including autonomous cars, car sharing and ride-pooling.

“The impact of electric cars, together with other aspects of the mobility revolution, such as self-driving cars, car sharing and ride pooling, is one of the key uncertainties surrounding the long-term outlook for oil,” said Dale.

The slowing rate of oil demand growth also is contrasted by the abundance of global resources. The outlook speculated that the abundance of oil may cause low-cost producers, such as the Organization of the Petroleum Exporting Countries, Russia and the United States, “to use their competitive advantage to increase their market share at the expense of higher-cost producers.”

Carbon Pricing Important, Says Dudley

Carbon emissions are projected to grow at less than one-third of the rate seen in the past 20 years, by an average of 0.6%/year versus 2.1%/year, reflecting gains in energy efficiency and the changing fuel mix. If the lower rate is achieved, it would be the slowest rate of emissions growth for any 20-year period since records began in 1965, BP noted.

However, global carbon emissions from energy use in the base case still are projected to grow throughout the period, by about 13%, which is “far in excess” of the International Energy Agency’s 450 Scenario, which suggests that carbon emissions need to fall by around 30% by 2035 to have a chance of achieving the goals set out in the 2015 United Nations agreement by 200 countries.

“The timing and form of government policy to encourage and facilitate the energy transition is important,” Dudley said. “In BP, we continue to believe that carbon pricing has an important part to play as it provides incentives for everyone — producers and consumers alike — to play their part.”