Gas demand growth to outstrip that of other major energy sources to 2002
Oil & Gas Journal, last week's issue
By Robert J Beck
WORLDWIDE NATURAL GAS PRODUCTION
Natural gas will be the fastest growing major source of energy during 1999-2002.
Abundant reserves, competitive prices, and
environmental advantages over the other hydrocarbon
fuels ensures strong market growth for natural gas
during the next 3 years.
Gas consumption will increase more rapidly than
overall energy demand, which will also move up
significantly in response to worldwide economic growth
(see related story, p. 43).
Worldwide gas demand will increase 8.4% from the 1999
level, to 87.2 tcf, in 2002. Over the forecast period,
this growth rate will only be exceeded by the "other
fuels" category, which includes relatively smaller
energy sources such as hydroelectric, geothermal, and
biomass.
The natural gas share of the expanding world energy
market will move up to 24.2% in 2002 from 23.8% in
1998-99.
Regional gas demand
Gas consumption among members of the Organization for
Economic Cooperation and Development will move up 7%
during the forecast period, to 47.2 tcf in 2002. The
natural gas share of the OECD energy market will
increase to 23.1% from 22.5 % in 1999.
Natural gas prices are expected to stay in line with
the prices of other fuels. That will help stimulate
demand for gas, particularly for electrical power
generation. Gas has been displacing oil and coal in
power generation markets as technology raises the
efficiency of gas-fired turbines and as stricter
environmental regulations favor cleaner-burning fuels.
In the OECD, gas has appeal as a price-competitive
fuel able to supply significant amounts of energy but
with relatively less carbon-related air pollution than
other hydrocarbons.
Increased European consumption will require growth in
imports. Through 2002, the current sources of
imports-the former Soviet Union and Northern
Africa-will satisfy most European demand. However, the
region may have to seek additional supplies from the
Middle East, where capacity to export liquefied
natural gas is growing. Europe is already purchasing
LNG from Qatar and Abu Dhabi.
The ability of the FSU to export significantly more
gas to Europe is in doubt. Demand for gas in the FSU
is projected to increase 4.7% to 19.3 tcf in 2002. The
natural gas share of the FSU energy market will rise
to 53.8% from 53.2% in 1999. Economic growth in the
FSU is very dependent upon adequate natural gas
supplies. And there is increased concern over
environmental issues, which favors the use of natural
gas. Any continuation of the transition to market
economies will stimulate economic growth in the region
and increase demand for energy. The huge gas reserves
would make substitution of natural gas for more
readily exploitable oil both possible and economically
attractive. But meeting the indigenous demand growth
may strain the ability of the FSU to develop more
production, given the current chaotic political and
economic conditions.
Gas consumption in the developing countries is
projected to move up 15.5% from current levels to 20.6
tcf in 2002. This will be an increase of 2.8 tcf over
the next 3 years. The natural gas share of the energy
market in the developing countries will continue to
climb, reaching 17.2% in 2002, compared with 16.8% in
1999. Gas demand growth during the forecast period is
expected to be part of a much longer trend towards
increased gas consumption in the developing world.
In the developing countries, gas demand will grow more
rapidly in areas with indigenous supplies and in those
countries prosperous enough to afford imports. Areas
with limited domestic energy supplies and limited
funds will tend to continue to favor oil.
Growth in demand for natural gas will depend heavily
on the ability of the fuel to compete with other
hydrocarbons in terms of price. Despite the many
advantages of gas as a fuel, most consumers won't
favor it over other fuels if they have to pay a
premium.
Consumption patterns, trends
According to the BP Amoco PLC Statistical Review of
World Energy, worldwide gas consumption increased
21.3% over the past decade. Total world demand moved
up from 65.2 tcf in 1988 to 79.1 tcf in 1998. The
natural gas share of worldwide energy consumption
increased from 21.8% in 1988 to 23.8% in 1998.
The increase in worldwide natural gas consumption came
despite a significant decline in FSU consumption. The
rapid decline in economic output in the FSU, following
the collapse of the communist state in 1991, led to a
decline in energy demand and natural gas consumption.
FSU consumption in 1998 totaled 18.68 tcf, down 14.7%
from 21.91 tcf in 1988. FSU demand peaked in 1991 at.
23.5 tcf.
There was a decline in FSU gas consumption during the
past decade, even though natural gas was displacing
oil in the domestic markets in order to allow
sufficient supply for oil exports. The natural gas
share of the FSU energy market increased to 53.1% in
1998 from 40.5% in 1988.
In the OECD, the increase in natural gas production
has not been as dramatic as in the developing
countries, but the total volume is much larger. The
comparative slowness in demand growth is in part due
to the relative maturity of the OECD gas markets
compared with markets in the developing countries.
OECD gas consumption increased 30.9% over the past
decade, from 33 tcf in 1988 to 43.2 tcf in 1998. The
gas share of the total OECD energy market increased
from 19.3% in 1988 to 22.3% in 1998.
In the developing countries, natural gas consumption
increased 67.2% from 10.3 tcf in 1988 to 17.3 tcf in
1998. Gas provided 13.9% of the energy consumed by
this group of countries in 1988 and 16.7% in 1998.
Looking at natural gas demand from a regional
perspective, some of the fastest growth over the past
decade occurred in regions with either rapid economic
growth or significant indigenous reserves.
Gas consumption in the Asia-Pacific region increased
95.1% from 4.7 tcf in 1988 to 9.2 tcf in 1998. Demand
in the Middle East moved up 90.9% over the same period
from 3.2 tcf in 1988 to 6.1 tcf in 1998. Gas
consumption in Central and South America increased
57.5% over the decade from 1.9 tcf to 3 tcf in 1998.
African gas demand increased 60.7% from 1.1 tcf to 1.7
tcf. European consumption increased 36% from 11.1 tcf
in 1988 to 15.1 tcf in 1998. And North American
consumption surpassed FSU demand during the decade,
moving up 18.9%, from 21.4 tcf to 25.4 tcf in 1998.
Over the same period, FSU demand fell 14.7% from 21.9
tcf in 1988 to 18.7 tcf in 1998.
Gas production
To support the increases in consumption over the past
decade, natural gas consumption has risen in most
areas of the world.
World production increased 20.5% over the decade, from
66.6 tcf in 1988 to 80.2 tcf in 1998. The increase
came in spite of a 10.4% decline in FSU production,
which fell from 25.4 tcf in 1988 to 22.7 tcf in 1998.
Due to the FSU drop, North America took over the top
spot in world natural gas production. North American
output of gas climbed 21.1% from 21.5 tcf in 1988 to
26.1 tcf in 1998.
The Middle East was the fastestgrowing region, as gas
production climbed 94% from 3.3 tcf in 1988 to 6.4 tcf
in 1998. The Middle East has vast reserves of natural
gas but no significant natural markets in the region.
Next in terms of growth rate was the Asia-Pacific
region, where production moved up 84.4% from 4.7 tcf
to 8.7 tcf in 1998. In Africa, output climbed 72.7%
from 2.1 tcf to 3.6 tcf. Gas production in South and
Central America moved up 58.2% from 1.9 tcf in 1988 to
3 tcf in 1998. Production in Europe increased 26.6%
from 7.7 tcf to 9.7 tcf in 1998.
OUTLOOK FOR WORLD NATURAL GAS CONSUMPTION
NATURAL GAS SHARE OF WORLD ENERGY MARKET
Gas trade
Worldwide trade in natural gas is increasing as
advances in technology lower the costs of long
distance pipelines and of LNG processing and
transportation.
An estimated 15.8 tcf of natural gas moved in
international trade in 1998. This was 19.6% of total
world gas production. In 1994, 12.5 tcf of natural gas
was exported, which represented 17% of total world
production.
Of the total traded in 1998, 11.8 tcf moved via
pipeline and 4 tcf in the form of liquefied natural
gas. LNG trade has been increasing significantly in
recent years, as more and more countries build
processing and exporting facilities.
The FSU is the world's leading exporter of natural gas
by virtue of its large-diameter pipelines to East and
West Europe. FSU exports were an estimated 4.3 tcf in
1998.
Canada was the second leading exporting country with
pipeline deliveries to the U.S. of 3.1 tcf in 1998.
Algeria was the next largest exporter with total
shipments of 1.85 tcf. Algeria's exports were split
52.5% via pipeline and 47.5% LNG. The vast majority of
the Algerian exports were to Europe.
Norway exported 1.5 tcf in 1998 via pipeline to other
European countries. The Netherlands exported 1.29 tcf
of gas, also throughout Europe.
Indonesia was the next largest natural gas exporting
country and the largest exporter of LNG. Indonesia
exported 1.27 tcf of LNG in 1998.
Looking on the import side, the U.S. was the largest
importer of natural gas with at 3.18 tcf in 1998. The
vast majority was pipeline imports from Canada, but
there were also LNG imports from Algeria, the UAE, and
Australia.
Germany was the next largest importer of natural gas
at 2.6 tcf in 1998, Germany imported large volumes of
natural gas via pipelines from the FSU, Netherlands,
and Norway. Smaller quantities of gas came from the UK
and Denmark.
Japan was next in line, with LNG imports of 2.33 tcf
in 1998. The major sources were gas from Indonesia and
Malaysia, but Japan also received LNG from Australia,
the US, Qatar, and the UAE. Japan was by far the major
importer of LNG. The second largest importer of LNG
was South Korea, with imports of 505 bcf in 1998, from
Indonesia, Malaysia, Brunei, and the UAE.
Italy imported 1.5 tcf of natural gas in 1998, mostly
via pipeline from Algeria, the FSU, and the
Netherlands. They also imported a small quantity of
LNG from Algeria and the UAE.
France was the next biggest importer with 1.26 tcf in
1998. Russia, Norway, and the Netherlands supplied the
pipeline gas to France. Significant imports of LNG
came from Algeria.
Natural gas prices
Natural gas prices have fluctuated in recent years but
have remained in a range below the peak levels they
reached in the first half of the 1980s.
According to the BP Amoco energy review, prices in
different areas of the world were very different over
the past decade. Natural gas is more of a
region-specific fuel than oil. The disparities seem to
be related somewhat to crude oil prices but also to
changing demand conditions in the region. The actual
price level is dependent upon factors such as
transport costs and the cost of competing fuels in the
region.
In OECD Europe, the average price of gas hit a peak of
$3.18/MMbtu in 1991. The price dropped to $2.27/MMbtu
in 1998 as oil prices fell. In the US, the price hit a
peak of $2.76/MMbtu in 1996. The price slipped to
$2.08/MMbtu in 1998. The price of LNG in Japan moved
up to $3.91/MMbtu in 1997 but then fell to $3.05/MMbtu
in 1998. The price of LNG was as high as $5.23/MMbtu
in 1983.
WORLDWIDE NATURAL GAS RESERVES
Worldwide reserves of natural gas totaled 5.144
quadrillion cu ft (quads) at the start of 1999 (OGJ,
Dec. 28,1998, p. 38). This was up from 5.086 quads a
year earlier.
Based on 1998 production, world reserves represent
62.3 years of supply.
OPEC does not dominate natural gas reserves as the
group does with oil, but the reserves are still
substantial. OPEC reserves totaled 2.207 quads at the
first of this year, 35.9% of the world total. By
contrast, OPEC has 77.4% of world oil reserves. Last
year, OPEC gas production represented only 12.2% of
the world total. Without convenient major markets,
OPEC has been slow developing and producing the
available reserves. Based on 1998 production, OPEC
reserves represent 218.6 years of supply. It is
expected that OPEC will move more aggressively to
exploit these reserves during the forecast period.
OPEC member Iran has the world's second largest
reserve of natural gas with 812 tcf at the start of
1999. Because of the country's distance from large
markets, however, relatively little of the gas
potential has been developed. At the current rate of
production Iran's reserves life index is 677 years.
The FSU, with estimated natural gas reserves of 1.977
quads, accounts for 38.4% of the world total. The FSU
has been more aggressive than the Middle East
countries in developing gas reserves for both domestic
consumption and export. The FSU reserves life index is
79.9 years.
US reserves totaled an estimated 167 tcf at the start
of 1999. At the 1998 rate, that production represented
only an 8.4-year supply. With a large and growing
demand for gas, the US will rely on imports for future
needs. Canadian gas reserves were an estimated 64 tcf
at the start of the year. At the current rate of
production, this represents a 9.6-year supply.
Future consumption growth in Europe also depends upon
imported supply, although recent North Sea discoveries
have boosted reserves. Western Europe's gas reserves
totaled an estimated 158.8 tcf, and the region
produced 9.4 tcf, in 1998. The reserves represent
about a 17-year supply at that rate of production.
Development of large deepwater gas reserves off Europe
might moderate the need to import growing volumes of
gas from the FSU and North Africa.
Outside the FSU and OPEC, gas reserves totaled 941 tcf
at the start of 1999. Production last year totaled
47.8 tcf. The reserves life index for the remaining
countries is 19.7 years. But reserves are somewhat
elastic and can expand with improved economics and
technology.
[Author note]
Robert J. Beck Managing Editor-Economics and Special
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