Analytics, China, EU – Baltic States, Gas, Gas Market , USA
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Thursday, 28.03.2024, 14:24
LNG market could start to tighten by 2023
The People’s Republic of China (hereafter, “China”) becomes
the world’s leading importer of natural gas. Driven by continuous economic growth
and strong policy support to curb air pollution, China accounts for 37% of the
global increase in natural gas consumption between 2017 and 2023, more than any
other country. As domestic production cannot keep pace, China becomes the
world’s largest natural gas importer by 2019 and with 171 billion cubic metres
(bcm) of imports by 2023, is mostly supplied by liquefied natural gas (LNG).
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Compared with the previous decade, the industrial sector takes the lead from
power generation as the main driver of global growth in demand for natural gas.
Emerging markets, primarily in Asia, account for the bulk of this increase with
uses as a fuel for industrial processes as well as for feedstock for chemicals
and fertilisers. Industrial gas demand also grows in major producing regions,
such as North America and the Middle East, to support expansion of their
petrochemicals sectors.
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United States is the source of much of the growth in natural gas production and
most of the additional LNG exports. The United States, already the world’s top
producer, accounts for almost 45% of the growth in global production and nearly
three-quarters of LNG export growth. The development of destination-free and
gas-indexed US LNG exports provides additional flexibility to the expanding
global LNG market.
China and emerging Asian markets drive growth in global natural gas consumption growth
China and emerging Asian markets drive growth in global
natural gas consumption growth 2017 was a year of strong growth for natural
gas, mainly driven by China.
Global natural gas demand grew by 3%, the highest increase
since 2010. China, where demand grew 15%, accounted for nearly a third of the
global increase, driven by a determined policy effort to improve air quality
through coal to gas boiler conversions in the residential and industrial
sectors. This led to an unprecedented surge in LNG imports, placing China as
the world’s second largest LNG importer after Japan.
The global natural gas market passes the 4 trillion cubic
metres (tcm) mark by 2022, with an expected average annual growth rate of 1.6%
throughout the forecast period. Emerging Asian markets, led by China, account
for more than half of the growth in global natural gas consumption to 2023.
China becomes the largest natural gas importing country in the world by 2019,
leading emerging Asian gas market growth. An increasing role for natural gas –
defined as a clean energy source – in every sector of China’s economy is backed
by strong policy support from the 13th Five-Year Plan. China’s demand grows at
an average of 8% per year throughout the forecast period, accounting for over a
third of global demand increase. The share of imports in China’s supply rises
from 39% to 45% over the forecast period. Other emerging Asian economies
increase their natural gas consumption for industry (including fertilisers and
petrochemicals) and power generation, and develop their domestic markets and
infrastructure to import more LNG (Figure ES.1).
Natural gas-rich regions, led by the Middle East and North
America, also experience sustained growth in consumption. The Middle East sees
continuous growth throughout the forecast period, primarily led by increasing
needs in industry, power generation and seawater desalination. In the United
States, the abundance of local natural gas supply encourages further use of gas
in chemicals and other industry sectors. The rebound in natural gas
availability and use in Egypt plays a large part in the increase in consumption
in Africa, while Latin American markets are reforming to develop the role of
domestic production. Consumption in Eurasia slightly decreases due to sluggish
economic growth. Mature net importing markets such as Europe, Japan and Korea
are expected to see their natural gas demand stagnate.
Price competitiveness and market reforms will be critical to
sustaining natural gas demand growth in emerging markets. Emerging markets are
much more sensitive to price levels than traditional buyers; competitiveness of
natural gas, either sourced from domestic production or imported, is therefore a
crucial factor in sustaining such demand growth. Emerging Asian markets, where
half of the global consumption increase is expected in the medium term, still
mainly use oil-indexed mechanisms to define natural gas prices. Importing
countries should pursue adequate market reforms to further open their own
domestic gas markets if they intend to benefit from the development of more
competitive wholesale gas markets, including market-based natural gas pricing
mechanisms.
Industry takes the leadership from power generation in sectoral demand growth
Gas for power generation, once the primary source of growth, expands slowly amidst tougher competition among generation fuels. Power generation accounted for half of the growth in natural gas consumption over the last decade, helped by abundant fuel supply in mature markets, fuel switching from oil in emerging markets, and the reduction in nuclear generation in the aftermath of the Fukushima Daiichi nuclear accident. During the projection period, natural gas for power generation continues to grow in North America and the Middle East driven by cheap domestic resources, but slower global electricity demand growth, the rapid rise of global renewable electricity production and tough competition from coal, particularly in Asia, limit its growth prospects.
The United States keeps its leading role in supply and export growth
The United States, the largest producer of natural gas, accounts for the largest share of supply expansion, with the production outlook given a boost by the gas associated with tight oil output. US natural gas production recovered in 2017 after a decline in 2016. Shale gas now accounts for twothirds of total output. Shale gas from the Appalachian (dry gas) and Permian (mainly associated gas) basins are the main pillars of US gas production growth and continue to grow, with Permian taking the lead as recovering oil prices favour investment in US light tight oil (LTO) production, increasing associated natural gas output. Additional US production accounts for almost 45% of the global growth and two thirds of that is exported via pipeline to Mexico or as LNG globally.
After a period of ample supply, the LNG market could start to tighten by 2023
LNG appears as the main driver of inter-regional natural gas trade growth, sustained by strong export capacity expansion. The wave of LNG export projects adds some 140 bcm of liquefaction capacity between 2018 and 2023, increasing global capacity by almost 30%. More than half of that expansion (over 80 bcm) takes place in the United States. Australia and Russia also provide significant contributions with 30 bcm and 15 bcm respectively. In comparison, pipeline expansion is more limited, happening mainly in North America (United States to Mexico) and from Eurasia to Europe and China.