Cedigaz official warns of price effects on gas demand

Feb. 13, 2006
The “destructive impact” of up-spiraling prices could slow world demand for natural gas, especially LNG, cautioned Marie-Françoise Chabrelie, Secretary General of Paris-based Cedigaz, in her presentation at the Institut Français du Pétrole’s annual Panorama in Paris Feb. 2.

The “destructive impact” of up-spiraling prices could slow world demand for natural gas, especially LNG, cautioned Marie-Françoise Chabrelie, Secretary General of Paris-based Cedigaz, in her presentation at the Institut Français du Pétrole’s annual Panorama in Paris Feb. 2.

Although gas has the greatest growth potential and its production is increasingly global, Chabrelie said, the most recent demand growth forecasts were distinctly lower than the 3%/year assumed at the end of the 1990s. Lower energy demand and slower economic growth, stricter energy conservation policies, and growing competition from other energy forms are responsible for the downturn.

Sustained economic growth will hover around 2.5%/year despite long-lasting high prices, Chabrelie said, and commitments to lower greenhouse-gas emissions will keep gas attractive. World gas demand to 2020 should grow at 2%/year to 3,800 billion cu m, she said, keeping the gas share of primary energy demand at 26-27%.

Growth rates vary by regions. North America and Europe, where the gas share is 24-25%, might continue to develop at 1.7%/year and 2.2%/year respectively.

Tax credits encouraging energy conservation and renewables in US homes will affect gas consumption, and spiraling prices might slow gas use in power generation in favor of coal and nuclear in the longer term.

In European members of the Organization for Economic Cooperation and Development (OECD), the economic and environmental advantages of gas are attractive, while power generation is pushing gas growth in the UK, the Netherlands, France, and particularly Spain and Italy.

The population boom in Latin America and Asia will push up gas demand, while in non-OECD Asia and Middle East countries industry should be the main stimulus for 3.5%/year demand growth.

India and Indonesia require increasing gas volumes for fertilizer production, and the Middle East needs gas for seawater desalinization and industry.

Chabrelie expects a 3%/year gas demand growth rate in Latin America and Africa.

Although gas-to-liquids production should open a market for natural gas as a vehicle fuel, Chabrelie sees only modest prospects for GTL in the medium term because of its poor energy yield, costly process, and high CO2 emissions.

LNG

LNG use, Chabrelie said, is stimulated by “new fundamentals”-higher gas prices in certain markets, stagnating production in the US and UK North Sea, the emergence of China and India as new markets, and the liberalization of energy markets. LNG brings the end of destination clauses and multiplies the number of commercial gas flows and traders.

Trade via LNG carriers is expected to grow by 7%/year by 2020, boosting LNG’s share of world gas trade to 38% from the current 22%.

But risks and uncertainties linked to spiraling gas prices could constrain LNG demand, particularly in the US. There the hitherto costly development of domestic gas reserves will become possible as will a gas pipeline from Alaska. Alternative energies for industry might replace expensive gas. For example, the power generation industry might turn to new “clean coal” technology, and nuclear power could make a comeback.

High gas prices also could spark LNG-pipeline competition as major new gas lines come on stream, Chabrelie said.

Over the next few years the LNG market will develop sporadically because of large investment requirements, erosion of recent cost reductions, and competition among projects. Nevertheless, LNG will remain central to a global gas market.