The Global Gas Report
Prepared in collaboration with the BCG Center for Energy Impact, it analyses the current status of the natural gas market and examines what is needed to achieve growth forecasts
Snam’s Global Gas Report sets out the key trends in the global natural gas market and how these trends will influence the sector’s future prospects.
The analysis compiled in the inaugural report suggests that global gas consumption is potentially at an inflection point, driven by increasing liquidity and global trade, improving cost competitiveness compared to other fuels and the role gas can play in decarbonisation and air quality improvement.
The study was presented by Marco Alverà, Snam’s Chief Executive Officer, at Johns Hopkins University School of Advanced International Studies (SAIS) in Washington, D.C., during a discussion on natural gas in Europe with Vali Nasr, Johns Hopkins SAIS dean.
Are we entering a “golden age of gas”?
Natural gas has long been expected to show significant growth, both in absolute terms and in terms of its share within the global energy mix. Since around 2010, there has been a widespread view that the world was entering a “golden age of gas”. Anyway, the strong growth trajectory underpinning these forecasts has to date not been realized and gas consumption growth has been well below forecasts.
The situation is now evolving. At a global level, progress has been made on a number of key drivers for gas consumption growth in terms of improving market liquidity and supply security, higher cost competitiveness – and evolving perceptions of its long-term sustainability. This progress is confirmed by specific gas industry developments in 2016.
There are therefore reasons to believe that a high growth trajectory of gas may still be achieved. Nevertheless some critical barriers remain to achieving the expected gas growth. The report aims to identify key trends in the gas market today, how these speak to the future prospects of gas, and what it will take for the growth forecasts for gas to be achieved going forwards.
LNG is continuing to grow, becoming more globalized. LNG prices continued to decline and converge across regions in 2016
Global LNG trade grew strongly, by 6% in 2016, compared to ca. 1% annual growth over the prior five years, supported by 31 billion cubic meters per annum (bcma) of liquefaction capacity coming online last year as a result of rapidly growing supply. The price for spot cargos fell by a quarter in both Asia and Europe, to $5.6/MMBtu (million British thermal units) and $5.0/MMBtu respectively. The decline in LNG prices in Europe and Asia represents a continued trajectory for global pricing convergence.
Gas consumption in key markets rebounded, with Europe leading the way
European gas consumption grew by more than 6% in 2016, accelerating the recovery which started in 2015 following the significant consumption decline from 2009-2014. This was led by the power sector in particular, where the lower supply cost of gas also coincided with a nuclear outage in France and an increase in the carbon price floor in the UK. Consumption in Asia continued to grow, led by a rebound in India and continuing growth in China which was driven by government policies to expand import infrastructure, develop domestic production, and incentivize gas consumption across sectors to reduce pollution.
Gas availability and market liquidity continue to expand as the market develops
The deployment of new LNG infrastructure and new technologies - such as Floating Storage Regasification Units (FSRUs) - can play a key role in promoting trade. However, rigidity in LNG contracting, domestic supply constraints and regulatory frameworks could continue to restrict demand in some markets. Meanwhile, judging by past trends, maximising domestic production where reserves are available – through a combination of stable and transparent policy and cost-efficient production - is likely to be a strong driver to grow consumption.
The future of gas is inextricably tied up with that of coal, particularly in Asia
Asia is the world’s key growth market for energy consumption, and it is still building coal-fired power generation. It will be no easy feat for gas to gain share from coal in this market. The cheapest LNG plants being built today (US brownfield conversions) cost less than $1000 per tonne of capacity, which supports a gas price in Asia that is still uncompetitive with coal. Assuming coal prices remained steady, making LNG competitive with domestically produced coal for electricity generation in Asia would require a cut of 20-30% in total LNG costs, or a combination of efficiencies and policy interventions to implement a carbon price.
Evolving perceptions of the sustainability of gas may play in its favour
New uses of gas, in areas such as transport, can address local air quality and global CO2 emission issues as cars, heavy vehicles and maritime vessels move away from oil-based fuels. Gas’s significantly lower emissions intensity also plays in its favour versus coal in power generation. However, the industry is facing increasing scrutiny over methane fugitive emissions, which operators need to address as a matter of urgency. And gas faces the challenge of developing technology to enable a longer term decarbonization, with work required on renewable gas (Biomethane), Power-To-Gas (hydrogen and syngas) and carbon capture and storage technologies.
18 October 2017 - 12:48 CEST