World demand for gas will show significant growth the next 20 years as a result of increasing price competitiveness with other fuels.
Power generation is the sector likely to see the largest increase in gas use.
DRI/McGraw-Hill, Lexington, Mass., assessed the price competitiveness of natural gas with other fuels to forecast the level of activity in worldwide gas markets.
The study predicts:
- World gas demand will increase 80% from 1990 to 3.7 trillion cu rn by 2015 (Table 1)(14037 bytes).
- Latin America and the Asia-Pacific region will see the highest gas demand growth rates 5.1%/year and 4.8%/year, respectively.
- Natural gas demand will grow 2.7%/year in western Europe, 1.8%/year in North America, and 1.4%/year in eastern Europe and the former Soviet Union (FSU).
- At current consumption levels, proved world gas reserves of 138 trillion cu m can accommodate about 70 years of demand, DRI says, noting gas reserves are more evenly distributed worldwide than oil reserves.
- Although the Middle East and F have more than 70% of the world's gas reserves, other regions will have enough reserves to allow consumption increases without over-reliance on distant sources.
- With rising gas demand will come a spurt in international gas trade. Current pipeline construction plans suggest growth in that means of gas transportation will be greater than growth in transportation by liquefied natural gas tankers during the next 20 years.
DEMAND SCENARIOS
DRI developed a world gas demand reference case, as well as two other scenarios leading to higher and lower growth paths,
In the higher (Higas) outlook, world demand will reach 4.2 trillion cu m in 2015, more than 14% higher than in the reference model (Refgas). In the low model (Logas), demand will reach 3.2 trillion cu m in 2015, 11.5% lower than in the Refgas case. Even in the Logas scenario, demand is more than 60% higher in 2015 than in 1990.
The Higas model studied the effect on gas markets of uncoupling gas prices from oil prices. The Logas scenario included implementation of environmental taxes, which improves the relative competitiveness of gas to other fuels but yields lower gas demand because all energy demand is then depressed.
DRI notes the prospect of environmental taxes has decreased since the 1993 defeat of the proposed U.S. BTU tax.
PRICE COMPETITION
DRI says under all scenarios gas prices will increase more slowly than oil prices, except in North America (Table 2)(16670 bytes).
North American gas prices will move at about the same rate as oil prices through 2015, except in the Refgas case where they outpace oil price growth. That's because gas prices fell to unusually low levels in the early 1990s after decontrol of U.S. gas markets.
At the end user level, increased competitiveness will feed through to consumer prices, sparking increased gas demand.
POWER GENERATION
The power generation sector will see the biggest boost in natural gas use worldwide.
DRI predicts world demand for gas in power generation will grow at a rate of 5%/year, more than double the rate for total gas demand.
The share of gas in the power generation fuel mix will increase to 19.2% by 2015 from 13.6%.
That excludes FSU and eastern Europe, where sector demand figures are less reliable.
WESTERN EUROPE
Gas demand in western Europe has increased 3%/year the last 5 years, a trend DRI expects to accelerate the next 20 years. The area has a relatively low rate of natural gas penetration, with the gas share of primary energy consumption of only 16% vs. 26% in North America and 39% in eastern Europe and FSU.
Factors that favor the use of natural gas in western Europe during the 1990s include:
- Environmental advantages compared with other fossil fuels, emitting less CO2 and SO2/energy unit and garnering greater public acceptance than nuclear energy.
- Supply abundance, with supplies coming increasingly from outside Europe as FSU's political changes make dependence on Russian gas more palatable.
- Technical and structural changes in power generation that make gas use more attractive.
Total European gas demand will double during the next 15 years, DRI predicts, with the share of gas in primary energy demand rising to more than 25%.
Western Europe's gas demand doubled during 1970-90, and DRI says the power generating sector will be the major source of growth.
NORTH AMERICA
In North America, gas demand got a boost from recent environmental regulations.
However, DRI notes the use of market mechanisms to meet environmental standards implies gas demand will continue to be price sensitive. And as a relatively mature gas market, growth rates in demand are likely to be more modest.
DRI predicts growth of gas demand in North America at 1.8%/year during 1990-2015, with three fourths of the increase occurring in power generation,
Two thirds of the increase will come from nonutility generators and one third from traditional electric utilities.
LATIN AMERICA
Natural gas demand in Latin America will increase more than 5%/year to 2015 when overall gas consumption will be almost 3 1/2 times 1990 levels.
The rapid increase in demand is based on forecasts of healthy economic development in the region after liberalization of markets, exchange rate stabilization policies, and increased access to international trade opportunities, DRI said.
Latin American countries are expected to continue to develop their resources and in many cases place increased emphasis on infrastructure development.
DRI cites Argentina as the leader in that area, with privatization of state gas monopoly Gas del Estado leading to new private investment from some major European and North American gas companies.
Region wide, the share of gas in total commercial primary energy demand will jump to almost 25% in 2015 from 19% in 1990, with Mexico, Venezuela, Brazil, and Argentina leading the way. The report cites Brazil as developing into an important gas market from a very low base.
ASIA-PACIFIC
Natural gas demand in the Asia-Pacific region will grow an average 5.3%/year during the forecast period, a greater growth rate than any other major fuel.
Natural gas' share of commercial primary energy will reach nearly 10% by 2015.
The report names India, Malaysia, and Thailand as countries with the most growth potential where gas will play a major role in economic development.
More mature economies such as Japan, Australia, and New Zealand have less room for growth, while South Korea and Taiwan's development of nuclear over limits the potential for natural gas in power generation.
China will see significant growth in gas demand from a low base, but the predominance of domestic coal in the energy balance could cap gas' share of total energy, still predicted at less than 3% by 2015.
However, given China's total energy demand still yields a demand increase of 39.6 billion cu m in 19902015.
MIDDLE EAST, AFRICA
Gas consumption in the Middle East and Africa combined is about equal to the Asia-Pacific region and about half the level of western Europe. However, 65% of the demand in the two regions is concentrated in just four countries: Iran, Saudia Arabia, U.A.E., and Algeria.
DRI noted infrastructure is not well developed and residential and commercial use accounts for only about 8% of demand. Power generation accounts for 32% of total gas demand.
On average region-wide, gas will increase to nearly 25% of primary energy demand in 2015 from 19% in 1990.
However, DRI expects little change in the position of gas from current levels in most of the two regions. Low per capita incomes, low population densities, and low energy demand will not allow the infrastructure development required to create a much larger gas market.
There is growth potential for countries with gas reserves and large end uses such as power generation and basic industry. Thus, future gas demand growth in the Middle East and Africa will occur where there is significant consumption today.
Under the Refgas case, DRI predicts Middle East and African gas consumption will grow an average 5%/year in 1990-2000, then slow to a little more than 3%/year until 2015. Main growth will be in power generation, expected to see demand nearly triple during the period.
WORLD TRADE
DRI analyzed production and supply costs from each major gas producing area to each major market and found each region of the world can be supplied with gas, either from within the region or from an adjacent region, at a cost below projected international gas prices (Table 3)(29639 bytes).
DRI predicts world gas trade will increase 4%/year during 1992-2015.
International gas trade is relatively small compared with marketed gas production but will be increasingly important in certain regions, such as the Far East and Europe.
More than half the new trade will occur in Europe, DRI predicts, as the U.K. is likely to import as much as 50% of its gas needs by 2015. That is a sharp reversal from the current situation, where plans have advanced for laying an export gas Pipeline from the U.K. to continental Europe.
Trade in North America is large but mainly confined to that between Canada and the U.S., with limited volumes of LNG from abroad.
DRI expects new patterns of trade to develop in Asia, currently dominated by Japanese purchases of LNG.
The analyst cites proposed pipelines from the Middle East to the Indian subcontinent and potential construction of an Association of Southeast Asian Nations pipeline linking Indonesia with Singapore, Malaysia, and Thailand. That means the growth in pipeline gas trade will be greater than growth in LNG trade the next 20 years.
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