Wood Mackenzie Predicts Robust Outlook for Global Gas Demand

While gas demand in Europe will struggle to recover to pre-financial crisis levels until the latter half of this decade, overall global gas demand continues to grow strongly, Ben Hollins, Head of Gas & Power Research for Wood Mackenzie told delegates in a presentation at FLAME 2013 in Amsterdam today.

In fact, Wood Mackenzie forecasts that global gas demand growth will be stronger this decade than last, with growth of 33% (between 2010 and 2020), leading to total global gas demand exceeding 4,000 billion cubic metres (bcm) by 2020. However, the growth in gas demand this decade will be driven by different markets: “When you look at the previous decade, demand growth was actually strongest in the Middle East, China, Russia, and Europe. By contrast the US market was virtually flat. But looking at the next decade to 2020, we forecast sustained significant growth in China (nearly 300 bcm alone), the Middle East, and also the US,” Hollins remarked.

Focusing on the US, Hollins explained: “Sustained low natural gas prices below $5 per million British thermal units (mmbtu) are encouraging significant new gas demand in North America. Indeed, methanol, ammonia, urea, steel, iron, ethylene and gas to liquids projects are all being proposed to take advantage of low North American gas prices. In addition to the industrial sector, other sectors are contributing to higher, permanent gas demand, including heating oil displacement in residential/commercial sectors, and coal-fired power generation retirals. In aggregate, we forecast North American gas demand growth between 2015 and 2020 to be more than 150bcm.”

The Middle East is also in the midst of significant change: “In contrast to the historic role of the Middle East as purely an export play, we expect gas exports to remain flat at around 100 bcm a year, whereas demand will increase by over 150 bcm by 2020,” Hollins continued.

Wood Mackenzie’s presentation painted a far less positive outlook for Europe: “Energy intensive industry is being squeezed by a lack of competitiveness. Coupled with that, we’ve already seen evidence that energy efficiency measures in the retail sector are taking hold in North West Europe. For now, the only upside is in Turkey and parts of Central & Eastern Europe, driven by relatively strong economic growth. Gas simply cannot compete with coal in the power generation sector at current fuel (and carbon) prices. While coal-fired power generation retirals mandated under the Large Combustions Plant Directive (LCPD) and the Industrial Emissions Directive later on should provide some headroom for gas from 2015 onwards, the outlook for gas into power generation remains largely dependent on the balance that European Union Policy makers strike in terms of the development of EU Emissions Trading Scheme and the renewable agenda,” Hollins said.

Hollins highlighted an additional source of demand in parting: “Penetration of gas into the transport sector is gathering momentum around the world, supported by attractive economics in North America and China, favourable taxation in Europe and stricter environmental legislation for LNG as marine bunker fuel. However, much of the upside for gas demand will depend upon infrastructure development inevitably implying significant lead time.”

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