Chapter 4 - Natural Gas
| In the IEO2007 reference case, natural gas consumption in the non-OECD
countries grows more than twice as fast as in the OECD countries. Production
increases in the non-OECD region account for more than 90 percent of the
growth in world production from 2004 to 2030. |
Consumption of natural gas worldwide increases from 100 trillion cubic
feet in 2004 to 163 trillion cubic feet in 2030 in the IEO2007 reference
case (Figure 40). By energy source, the projected increase in natural gas
consumption is second only to coal. Natural gas remains a key fuel in the
electric power and industrial sectors. In the power sector, natural gas
is an attractive choice for new generating plants because of its relative
fuel efficiency. Natural gas also burns more cleanly than coal or petroleum
products, and as more governments begin implementing national or regional
plans to reduce carbon dioxide emissions, they may encourage the use of
natural gas to displace liquids and coal.
Much of the world’s natural gas use is for industrial sector processes.
The industrial sector accounted for 44 percent of world natural gas consumption
in 2004 and is projected to account for 43 percent in 2030. With world
oil prices expected to remain high relative to historical levels throughout
the projection period, natural gas is projected to displace liquids in
the industrial sector to some extent. Industrial use of natural gas is
projected to increase at an average annual rate of 1.9 percent from 2004
to 2030, as compared with an average increase of 1.1 percent per year for
liquids consumption in the industrial sector.
In 2004, OECD member countries accounted for just over one-half of the
world’s total natural gas use, non-OECD Europe and Eurasia accounted for
one-quarter, and the other non-OECD countries accounted for the remainder
(Figure 41). In the IEO2007 reference case, natural gas consumption in
the non-OECD countries grows more than twice as fast as consumption in
the OECD countries, with 2.6-percent average annual growth from 2004 to
2030 for non-OECD countries, compared with an average of 1.2 percent for
the OECD countries. Natural gas demand in the non-OECD countries accounts
for 71 percent of the total world increment in natural gas consumption
over the projection period. In the non-OECD countries (excluding non-OECD
Europe and Eurasia) natural gas use increases from less than one-quarter
of the world total in 2004 to 35 percent in 2030.
The OECD countries accounted for 40 percent of the world’s total natural
gas production and 52 percent of total natural gas consumption in 2004;
in 2030, they are projected to account for only 27 percent of production
and 43 percent of consumption. Natural gas production in the OECD nations
increases by an average of only 0.4 percent per year in the IEO2007 reference
case, whereas their demand increases by 1.2 percent per year. As a result,
the OECD countries are projected to rely increasingly on imports to meet
natural gas demand, with a growing percentage of traded natural gas coming
in the form of LNG. In 2030, more than one-third of the natural gas consumed
in OECD countries is projected to come from other parts of the world, up
from 22 percent in 2004.
Reserves and Resources
Historically, world natural gas reserves have, for the most part, trended
upward (Figure 42). As of January 1, 2007, proved world natural gas reserves,
as reported by Oil & Gas Journal,9 were estimated at 6,183 trillion cubic
feet—71 trillion cubic feet (about 1 percent) higher than the estimate
for 2006 [1].
The largest revisions to natural gas reserve estimates were reported for
Kazakhstan, Turkmenistan, and China. Kazakhstan added an estimated 35 trillion
cubic feet (a 54-percent increase over 2006 proved reserves), Turkmenistan
29 trillion cubic feet (41 percent), and China 27 trillion cubic feet (50
percent). The United States also reported an increase of 12 trillion cubic
feet over its 2006 reserves—a 6-percent increase and the largest increment
in U.S. annual reserves since 1970. Declines in natural gas reserves were
reported for the Netherlands (a decrease of 12 trillion cubic feet), Trinidad
and Tobago (7 trillion cubic feet), Argentina (3 trillion cubic feet),
Nigeria (3 trillion cubic feet), and Italy, Norway, the United Kingdom,
and Saudi Arabia (about 2 trillion cubic feet each).
Almost three-quarters of the world’s natural gas reserves are located in
the Middle East and Eurasia (Figure 43). Russia, Iran, and Qatar combined
accounted for about 58 percent of the world’s natural gas reserves as of
January 1, 2007 (Table 6). Reserves in the rest of the world are fairly
evenly distributed on a regional basis.
Despite high rates of increase in natural gas consumption, particularly
over the past decade, most regional reserves-to-production ratios are substantial.
Worldwide, the reserves-to-production ratio is estimated at 65 years [2].
Central and South America has a reserves-to-production ratio of about 52
years, Russia 80 years, and Africa 88 years. The Middle East’s reserves-to-production
ratio exceeds 100 years.
The U.S. Geological Survey (USGS) periodically assesses the long-term production
potential of worldwide petroleum resources (oil, natural gas, and natural
gas liquids). According to the most recent USGS estimates, released in
the World Petroleum Assessment 2000 and adjusted to reflect current proved
reserves, a significant volume of natural gas remains to be discovered.
Worldwide undiscovered natural gas is estimated at 4,136 trillion cubic
feet (Figure 44). Within the total natural gas resource base, an estimated
3,000 trillion cubic feet is in “stranded” reserves, usually located too
far away from pipeline infrastructure or population centers for its transportation
to be economical. Of the new natural gas resources expected to be added
through 2025, reserve growth accounts for 2,347 trillion cubic feet.
World Natural Gas Supply
Production increases in the non-OECD countries are projected to account
for more than 90 percent of the world’s total growth in production from
2004 to 2030 (Figure 45). In the non-OECD countries, production is projected
to grow by an average 2.6 percent per year, from 59 trillion cubic feet
in 2004 to 119 trillion cubic feet in 2030. In particular, Russia and the
Middle East each account for around 20 percent of the increase in annual
production over the projection period. Both regions are expected to provide
connections to natural gas markets in the Atlantic and Pacific basins,
with Russia exporting mainly by pipeline and most Middle East exports being
shipped as LNG.
Russia has an extensive pipeline network reaching into Europe and has proposed
the construction of pipelines to China and South Korea. In addition, Russia
is beginning to enter LNG markets. It has traded pipeline gas for Atlantic
LNG cargos, has plans to develop LNG export facilities to serve the Atlantic
market, and soon will start exporting LNG from its Pacific coast. The Middle
East already exports significant quantities of LNG to customers in both
the Atlantic and Pacific basins. In 2005, 15 percent of the LNG exports
from the region went to North America and Europe and 85 percent to Asia.
Qatar has several LNG export projects under construction that are targeted
for sales to North America and Europe. In December 2006, however, Qatar
announced that the LNG from one project originally targeted for Atlantic
buyers had been sold to Asian buyers in the Pacific basin.
Africa and non-OECD Asia (excluding China and India) are expected to be
important sources of natural gas production in the future. For each of
the two regions, natural gas production in 2030 is projected to be some
10 trillion cubic feet above 2004 production levels. The two regions combined
accounted for 14 percent of the world’s natural gas production in 2004;
in 2030, their combined share is projected to be 21 percent. A significant
portion of the production from both regions is exported. In 2004, 26 percent
of the natural gas production from the countries of non-OECD Asia (primarily
from Brunei, Indonesia, Malaysia, and Myanmar [formerly Burma]) and 50
percent of the production from African countries was for export. In 2030,
the export share of production from non-OECD Asia is projected to fall
to 10 percent, as domestic consumption takes precedence over exports, whereas
the export share of Africa’s production is projected to increase. Several
pipelines from North Africa to Europe are under consideration, and LNG
export capacity in West Africa continues to expand.
Historically, the United States has been both the largest producer and
the largest consumer of natural gas in North America, and Canada has been
the primary source of U.S. natural gas imports. In 2004, Canada provided
85 percent of gross U.S. imports of natural gas. Although Canada’s unconventional
and Arctic production both are expected to increase over the projection
period, and LNG imports into Eastern Canada are expected to begin by the
end of the decade, those supply increases are not expected to be sufficient
to offset a decline in conventional production in Canada’s largest producing
basin, the Western Sedimentary Basin. Gross U.S. imports of LNG are projected
to exceed gross pipeline imports from Canada after 2015, and Canada’s share
of gross U.S. imports is projected to decline to 25 percent in 2030.
Rising natural gas prices are expected to make it economical for two major
North American pipelines that have long been in the planning stages to
come online. The first, a Canadian pipeline to transport natural gas from
the MacKenzie Delta, is expected to become operational in 2012. The second,
an Alaska pipeline, is expected to begin transporting natural gas from
Alaska to the lower 48 States in 2018, contributing significantly to U.S.
domestic supply. Alaska’s natural gas production accounts for all of the
projected growth in domestic U.S. conventional natural gas production from
2004 to 2030, with flows on the Alaska pipeline increasing to 2.2 trillion
cubic feet in 2030. As a result, Alaskan production is projected to account
for 22 percent of the increase in U.S. natural gas supply in 2030 relative
to the 2004 total.
A large portion of North America’s remaining technically recoverable resource
base of natural gas consists of unconventional sources, which include tight
sands, shale, and coalbed methane. With most of the large onshore conventional
fields in the United States already having been discovered, the United
States, like Canada, must look to these costlier sources of supply to make
up for declines in conventional production. Unconventional production,
especially from tight sands formations, is expected to be a significant
source of U.S. incremental supply, increasing from 40 percent of total
domestic production in 2004 to 50 percent in 2030 and accounting for 28
percent of the increase in U.S. natural gas supply in 2030 relative to
the 2004 total.
By far the largest source of U.S. incremental natural gas supply (50 percent
of the increase in 2030 relative to 2004) is expected to be LNG. Currently,
the United States has five LNG import facilities in operation with a total
peak capacity slightly above 5.8 billion cubic feet per day. Four additional
facilities are under construction in the Gulf of Mexico. When completed,
the four new terminals will more than double U.S. LNG import capacity.
Peak annual U.S. LNG import capacity in 2030 is projected to reach 6.5
trillion cubic feet, with actual imports of 4.5 trillion cubic feet (Figure
46).
The growth of U.S. LNG imports is expected to be strong through most of
the projection period. The significant growth in U.S. LNG imports is indicative
of the country’s growing dependence on imports and the increasing globalization
of natural gas markets. The emerging LNG markets in Canada and Mexico,
both of which have facilities either in operation (in Altamira, Mexico)
or under construction, also highlight this trend.
Mexico has significant untapped reserves of natural gas, but the Mexican
government does not have the resources needed to develop them and to date
has been relatively unsuccessful in attracting foreign capital. Currently,
only the state oil and natural gas company, Pemex, is allowed to have any
ownership interest in Mexico’s oil and natural gas reserves, which makes
participation in the development of Mexico’s oil and gas resources unattractive
to foreign investors.
Outside North America, the Australia/New Zealand OECD region is projected
to see the most rapid expansion of natural gas production among all the
world regions (but starting from a much lower point than many other producing
regions). Production in Australia/New Zealand is projected to grow by an
average of 4.3 percent per year from 2004 to 2030 (Table 7), and most of
the increase is expected to be used for LNG exports. Australia currently
has 0.75 trillion cubic feet of LNG export capacity from five liquefaction
trains, including four at the Northwest Shelf project and one at the Darwin
project that began operation in February 2006. More than 2.5 trillion cubic
feet per year of additional LNG liquefaction capacity has been proposed.
The Australia/New Zealand region is projected to account for 5 percent
of the growth in world natural gas production from 2004 to 2030 and 3 percent
of total production in 2030.
Investment in Australia’s natural gas sector projects has been helped by
the country’s reputation as a stable political environment that takes no
state equity in reserves or LNG assets. Even in Australia, however, state
involvement has a bearing on project economics. The Gorgon LNG project
to develop reserves off Australia’s northwest coast faces not only stringent
environmental requirements but also, in an agreement with the Western Australia
state government, a requirement that the project must allocate 15 percent
of Gorgon reserves for domestic consumption. The Western Australia government
negotiated a similar agreement with the Northwest Shelf LNG developers,
reserving 4.7 trillion cubic feet of Northwest Shelf natural gas for the
domestic market. The requirement for domestic sales has kept natural gas
prices in Western Australia below the LNG netback equivalent; however,
all of the reserved natural gas has been consumed or allocated, and the
Western Australia government is now looking at options for applying domestic
reservation requirements to all future liquefaction projects that would
process offshore gas in Western Australia [3].
Increasing state involvement in the upstream natural gas activities of
several large reserve holders throughout the world is threatening to delay
or discourage investments in new production and export capacity. In May
2006, Bolivia nationalized its energy resources, prompting investors to
suspend further investment, including suspending plans to expand export
pipelines. In January 2006, Venezuelan President Hugo Chavez proposed changing
the constitution to make both natural gas and petroleum assets subject
to state control. And in October 2006, Russia announced that there would
be no foreign ownership in the giant Shtokman natural gas reserves, although
it may bring foreign firms in as contractors to help with the development.
Also in Russia, the majority state-owned firm Gazprom has gained a controlling
share in the Sakhalin-2 LNG project, owned by a consortium led by Royal
Dutch/Shell, ending disputes with authorities about environmental issues
that had plagued the project [4].
World Natural Gas Demand
OECD North America
Natural gas consumption in North America (Figure 47) is projected to increase
at an average annual rate of 1.0 percent from 2004 to 2030. The average
annual growth rate for natural gas demand in the United States is projected
to be 0.6 percent, significantly less than in Canada and Mexico, largely
because of the impact of higher natural gas prices and supply concerns
in U.S. natural gas markets. As North America’s largest consumer, the United
States accounted for more than 80 percent of the 27.6 trillion cubic feet
of natural gas consumed in North America in 2004. As a result of the relatively
slow growth in U.S. demand and robust growth in Canada and Mexico, the
U.S. share of North America’s total natural gas consumption in 2030 falls
to 74 percent.
In 2004, natural-gas-fired plants accounted for less than 20 percent of
electricity generation in the United States, while coal-fired plants accounted
for about 50 percent. The natural gas share of generation is projected
to rise to 22 percent in 2015. After 2015, higher natural gas prices, along
with tax incentives for clean coal technologies, are expected to discourage
the construction of new natural-gas-fired plants in favor of coal-fired
plants, leading to a decline in the natural gas share to 16 percent and
an increase in the coal share to 57 percent in 2030. U.S. natural gas consumption
for electricity generation is projected to peak in 2020 at 7.2 trillion
cubic feet, followed by a decline to 5.9 trillion cubic feet in 2030.
In Canada, natural gas consumption in the residential and commercial sectors
is expected to increase steadily at rates of 0.5 and 0.7 percent per year,
respectively. Strong growth rates of 2.2 percent per year in Canada’s consumption
of natural gas for electricity generation and 2.1 percent per year for
industrial uses—including vast quantities of natural gas consumed in the
mining of the country’s oil sands deposits—are the main contributors to
Canada’s projected consumption growth. The expected growth in domestic
consumption, coupled with a projected production decline of 0.3 percent
per year, would leave less Canadian natural gas available for export. In
2004, Canada consumed 52 percent of its own natural gas production. In
2030, it is expected to consume 87 percent of its production domestically.
In Mexico, strong growth in natural gas consumption is expected in all
sectors, with total consumption more than doubling between 2004 and 2030.
Although the absolute quantities are small, average annual growth of 3.8
percent and 3.7 percent are expected for natural gas consumption in the
residential and commercial sectors, respectively. Industrial consumption
is projected to almost double, and consumption for electricity generation
is expected to almost triple. Mexico’s natural gas production is expected
to double between 2004 and 2030, from 1.5 trillion cubic feet to 3.0 trillion
cubic feet, but the projected growth in consumption over the period (2.4
trillion cubic feet) far exceeds the production growth, leaving Mexico
dependent on LNG-exporting countries and on pipeline imports from the United
States for needed supplies. Mexico remains a net importer of natural gas
from the United States throughout the projection period.
OECD Europe
Natural gas is expected to be the fastest growing fuel source in OECD Europe,
with demand increasing at an annual average rate of 1.4 percent, from 18.8
trillion cubic feet in 2004 to 23.0 trillion cubic feet in 2015 and 26.9
trillion cubic feet in 2030 (Figure 48). Growth in natural gas use for
power generation is projected to account for the majority of total incremental
gas use to 2030. Natural-gas-fired generation is less carbon-intensive
than oil- or coal-fired generation and is expected to remain more cost-competitive
than renewable energy, making natural gas the fuel of choice for new generating
capacity in OECD Europe.
OECD Asia
In Japan, natural gas consumption is projected to grow on average by 1.4
percent per year over the projection period, from 3.0 trillion cubic in
2004 to 4.3 trillion cubic feet in 2030 (Figure 49). The strongest growth
in consumption is projected for the electric power sector, averaging 1.7
percent annually from 2004 to 2030.
Total natural gas consumption in South Korea is projected to grow at an
average annual rate of 1.6 percent from 2004 to 2030. In 2004, the residential
sector was the country’s predominant source of demand for natural gas,
accounting for 39 percent of the total. The electric power sector was a
close second at 33 percent of total natural gas use, followed by the industrial
sector at 20 percent of the total.
South Korea has large seasonal swings in demand for natural gas, importing
more than twice as much LNG at its annual winter peak as at its lowest
point during the summer—primarily to meet demand for heating in the residential
sector. For a country that imports all its natural gas supplies as LNG
and has no underground storage facilities, this can be an expensive undertaking.
Korea Gas Corporation paid as much as $26 per million Btu for LNG on the
spot market in 2005 and 2006, when it faced steep competition for winter
cargoes [5]. In the reference case projection, however, with nearly flat
population growth, South Korea is expected to see the growth of natural
gas consumption in its electric power and industrial sectors outpace growth
in the residential sector, potentially moderating seasonal swings in overall
demand.
In Australia and New Zealand, the industrial sector currently is the predominant
consumer of natural gas and is projected to account for more than 50 percent
of all natural gas consumption in the region throughout the projection
period. Natural gas is the fastest growing fuel in Australia and New Zealand
in the IEO2007 reference case, accounting for 30 percent of the projected
growth in the region’s total energy consumption from 2004 to 2030. It is
also the fastest growing fuel in the region’s electric power sector. Although
Australia has not ratified the Kyoto Protocol, several of the government’s
environmental policies have been put in place to help stimulate increases
in natural gas use for electric power generation and to moderate growth
in the use of coal, of which Australia has large reserves.
In January 2003, the government of New South Wales instituted a greenhouse
gas abatement scheme that applies to electricity retailers [6]. Also, starting
in January 2005, the Queensland government’s “13 percent Gas Scheme” requires
all electricity retailers to source at least 13 percent of their electricity
from natural-gas-fired generation. The scheme allows certificates from
qualified generation to be traded independently of the electricity generated.
Electricity retailers are then required to acquire and turn in certificates
representing their 13-percent minimum. The scheme aims to reduce greenhouse
gas emissions and boost the natural gas industry in Queensland [7].
Non-OECD Europe and Eurasia
The non-OECD Europe and Eurasia region is more reliant on natural gas than
any other region in the world. Russia is second only to the United States
in total natural gas consumption, with demand totaling 16.0 trillion cubic
feet in 2004 and representing 55 percent of Russia’s total energy consumption
(Figure 50). The other countries of non-OECD Europe and Eurasia met 44
percent of their combined total energy needs with natural gas in 2004,
consuming 8.4 trillion cubic feet.
Natural gas intensity (defined as the amount consumed per dollar of GDP)
in non-OECD Europe and Eurasia is greater than in any other region of the
world, although it has improved in recent years from 9.7 thousand Btu per
dollar of GDP in 1996 to 7.5 thousand Btu per dollar in 2004. In the IEO2007 reference case, natural gas intensity in the region is projected to continue
improving (decreasing) at an average rate of 2.8 percent per year from
2004 to 2030. Even at that rate, however, natural gas intensity in non-OECD
Europe and Eurasia is not projected to equal the 2004 level of North America’s
natural gas intensity until after 2030.
Non-OECD Asia
The fastest growth in natural gas consumption among all regions is projected
for non-OECD Asia, which accounted for only 8.5 percent of the world total
in 2004 but is projected to account for almost 30 percent of the increase
in total natural gas consumption from 2004 to 2030. Natural gas consumption
in non-OECD Asia more than triples in the IEO2007 reference case, from
8.5 trillion cubic feet in 2004 to 27.4 trillion cubic feet in 2030 (Figure
51).
Led by demand in China and India, natural gas consumption in non-OECD Asia
is projected to expand by 4.6 percent per year on average from 2004 to
2030. In both China and India, natural gas currently is a minor fuel in the
overall energy mix, representing only 3 percent and 8 percent, respectively,
of total primary energy consumption in 2004; however, both countries are
rapidly expanding infrastructure to serve demand. China received it first-ever
LNG cargo in mid-2006 under a long-term contract with Australia.
India increased its spot and short-term LNG purchases in 2006, reportedly
paying more than $9 per million Btu for one cargo (a year earlier, Royal
Dutch/Shell could not find customers for LNG from its Hazira regasification
terminal at a price of about $8 per million Btu). Natural gas shortages
in India have reportedly left natural-gas-fired electric power plants and
fertilizer plants underutilized in the past few years. In the IEO2007 reference
case, India’s natural gas consumption is projected to rise rapidly in the
mid-term, growing by 6.2 percent per year on average from 2004 to 2015.
As international natural gas prices gain acceptance in India, and as supplies
from the Krishna-Godavari basin come on line around 2010, domestic natural
gas supply is expected to catch up with currently underserved demand and
also expand to serve new demand.
Natural gas supplies have also been tight in other parts of non-OECD Asia.
LNG exports from Indonesia’s Arun and Bontang liquefaction plants have
been declining steadily, as dwindling production from the aging fields
has been diverted to satisfy local demand. Startup of the Tangguh liquefaction
plant, scheduled for 2009, should boost Indonesia’s exports for a time,
but it is expected that the country will soon lose its place (to Qatar)
as the world’s largest exporter of LNG.
Growth in natural gas consumption is projected to outstrip production growth
in the non-OECD Asia region over the projection period. In 2004, net exports
from the region were equal to 19 percent of its total production. In the IEO2007 reference case, its net exports fall to 4 percent of production
in 2015, and in 2020 the non-OECD Asia region is projected to be a net
importer, with importing exceeding production by 9 percent.
Other Non-OECD
In the IEO2007 reference case, natural gas consumption grows at average
annual rates of 2.5 percent in the Middle East and 3.3 percent in Africa
from 2004 to 2030. Natural gas consumption in the Middle East almost doubles
over the projection period, and consumption in Africa more than doubles
(Figure 52). Before 2015, most of the increase in natural gas production
in both regions is projected to be for export projects. As a result, the
export share of production increases from 2004 to 2015 in both regions
(Figure 53). After 2015, production increases in the two regions are expected
to be directed more toward domestic consumption, and their export shares
of production show only slight increases from 2015 to 2030.
In Central and South America, natural gas is the fastest growing fuel source,
with demand increasing on average by 2.6 percent per year, from 4.1 trillion
cubic feet in 2004 to 7.9 trillion cubic feet in 2030. Brazil accounts
for more than 20 percent of the projected increase in the region’s consumption
of natural gas in 2030 relative to total consumption in 2004.
Notes and Sources
References
Chapter 4 Tables  |
