IEA sees annual gas demand growth of 1.5% to 2040

Natural gas will be the fastest growing fossil fuel out to 2040 but the increase in demand will be slower than over the last 25 years, according to the latest annual report from the International Energy Agency.

Within the gas industry, LNG will account for a larger share of inter-regional trade, as complex pipeline projects find it harder to gain support in a market awash with LNG, the agency adds in its World Energy Outlook 2016.

Five years ago, in its 2011 outlook, the agency asked whether the world was about to enter “a golden age of gas.” In the event, that golden future was not achieved, with the high price of gas, particularly in regions where imports were linked to oil, limiting uptake of the fuel when competing against cheap coal in certain markets, and renewables in others.

However, the IEA’s latest forecasts still show a fairly bright future for gas.

In its baseline “New Policies” scenario, the IEA sees global gas demand growing annually at 1.5% out to 2040, from 3.5 billion cubic metres (bcm) in 2014 to 5.2bcm in 2040.

This is below the 2.3%/year growth rate seen in the past 25 years, but would make gas the fastest growing fossil fuel, and increase its share in global primary energy demand from 21% today to 24% in 2040.

The “New Policies” scenario is based on nations following through with current policies to tackle global warming, including acting on pledges made at the COP21 summit in Paris.

In a second “450 Scenario,” based on policies required to limit global warming to 2°C, gas use would plateau from the 2030s, but would still see its share increasing slightly. The scenario is named after the 450 parts per million limit on carbon dioxide in the atmosphere needed to hold warming at this level.

The power sector is currently the largest gas consuming sector, accounting for 40% of world gas demand, and would contribute 35% to global growth in the “New Policies” scenario. The IEA notes, however, that although it is now assuming lower gas import prices than in its calculations last year, gas could still find it hard to compete against coal for baseload generation in Asian markets.

Industrial consumption of gas is forecast to account for 40% of demand growth.

The use of gas for space heating, water heating and cooking is expected to decline but demand from the transport sector, however, could grow by over 160bcm to reach 280bcm in 2040, within which LNG as a bunker fuel for ships could rise to 49bcm by the end of the period.

In the near-term, the US and Australia are expected to contribute two thirds to gas production growth until 2020. However, from the early 2020s onwards, output growth will be coming from a wider range of producers, including the emergence of east African output and Argentinian shale.

The Middle East, China and Russia are seen accounting for 24%, 13% and 8% respectively of incremental global gas production to 2040.

Gas trade between regions is expected to grow by 70% in this period, with 45% of the additional trade expected to develop over the next decade.

The IEA says the gas market will be “in flux” in the period to the mid-2020s. The current wave of new LNG capacity will gradually be absorbed, new players will enter the market, incumbents will be challenged and prices will eventually “rebound as the market rebalances.”

The agency expects LNG to capture around 70% of the additional gas trade, and increase its total share in inter-regional gas trade from 42% in 2014 to 53% in 2040. alex.froley@icis.com