Last year was “another golden year for natural gas,” with demand surging by 4.6 percent, the fastest rate since 2010, according to a new report from the International Energy Agency. Gas accounted for 45 percent of the increase in total primary energy demand last year.
Unsurprisingly, China and the U.S. accounted for the lion’s share of the increase. Gas demand for power plants and for petrochemicals continues to surge in both countries. Also, unusual temperatures (excessively cold in winter and hot in summer) helped push up consumption.
However, the blistering growth rate in gas consumption is expected to slow going forward, with annual increases decelerating to just 1.6 percent through 2024. “2018’s strong growth is unlikely to be the norm in the future because of slowing economic growth, declining potential for switching from coal to gas, and a return to average weather conditions after last year’s exceptionally hot summer in the northern hemisphere,” the IEA said.
China is ground zero for the future of gas, accounting for 40 percent of global demand growth over the next half-decade. The main impetus for soaring gas consumption is to clean up horrific air pollution in major Chinese cities, which reached dystopian levels in recent years. Switching from coal to gas in electricity generation, as well as for home heating, has already helped improve air quality a bit.
While growth rates in demand for gas globally are set to slow, the same is true for China. Gas demand grew by 14.5 percent in China in 2017, and 18.1 percent last year. But that is expected to slow to 8 percent annually going forward, the IEA said. The main reason is because the Chinese economy is growing at a slower pace. Trump’s trade war with China, if it persists, will also drag down growth.
In the U.S., cheap gas has stoked demand, paving the way for billions of dollars’ worth of investment in petrochemical complexes and new gas-fired power plants. Cheap shale gas is killing coal, and new plants lock in future demand for gas. The same is true for nuclear power – as nuclear plants shut down, gas stands to benefit. Related: Oil Bulls See Glimmer Of Hope
But a surge in natural gas production, in the U.S. but also elsewhere, is pushing up demand globally. The wave of LNG export terminals that have come online are also connecting more and more countries, making gas trade easier. The U.S. will overtake Qatar and Australia to become the largest LNG exporter in the world by 2024, the IEA said. Meanwhile, China will become the largest importer at the same time. That makes China’s import tariffs on U.S. LNG, which came in retaliation to Trump’s tariffs on China, particularly notable.
The market for LNG is facing a glut right now, but the IEA said that the surplus will flip into a deficit in the 2020s. The agency expects the next round of FIDs into new LNG export terminals to begin this year, after several years of paltry investment.
More gas use, an expanded volume of gas that is traded on a global basis, and an increase in the number of import and export terminals has led to a convergence in natural gas prices around the world, the IEA said. “Differences in regional prices have sharply decreased since the final quarter of 2018 (especially between Asia and Europe) thanks to well-supplied markets. But the Asian spot market still faces a higher degree of price volatility because of stronger seasonal patterns,” the IEA wrote in its report. “The expansion of the LNG trade is likely to encourage greater price convergence.”
Curiously, the IEA had nothing to say about climate change. While natural gas releases roughly half the CO2 profile as coal when burned, the problem of methane emissions continues to dog the industry. High rates of gas flaring, venting and leaks negate much of the climate benefit that gas claims to hold. Even leaving aside those problems, gas may face increase scrutiny as the climate crisis worsens. Ultimately, gas is still a fossil fuel. Related: Oil Industry Banks On Shaky Plastic Bet
“Gas breaks the carbon budget,” Oil Change International wrote in a new report. “There is no room for new fossil fuel development – gas included – within the Paris Agreement goals. Even if global coal use were phased out overnight, developed reserves of oil and gas would push the world above 1.5°C of warming.”
One need not be an environmentalist to recognize the serious threats to investments in new gas infrastructure. The IEA does not address this conundrum when it urges more investment, which it says “is necessary.” New infrastructure will have investment horizons that span decades, some of which may become stranded assets as carbon constraints grow tighter. “Power plants, pipelines, and other oil and gas infrastructure built today could very well still have unpaid debt on it by 2050, when the economy will need to be decarbonized to meet climate goals,” Joseph Daniel, a senior energy analysts with the Union of Concerned Scientists, told E&E News. “The oil and gas industry is facing 100's of billions of dollars in potential stranded assets.”
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By Nick Cunningham of Oilprice.com
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