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The framework applied - 2010-2015 regional analysis

2010-2015: regional analysis

A quick overview of recent trends in gas sector by region

To assess how the three drivers have evolved in practice over the past five years, the document assesses them at a regional scale focusing on North America, Europe, Asia, and the Middle East. These are the four largest regions for gas consumption today and predicted to be the most significant drivers of growth going forward.

North America

 

icona gas naturale US production

 

+50%

2005-2015, DRIVEN BY AN INCREASE IN SHALE GAS PRODUCTION FROM 20 BCM TO OVER 350 BCM PER YEAR

icona gas naturale Canada shale production

 

+60bcm

FROM 2010 TO 2015

icona gas naturale Mexico prices

 

-38%

SINCE 2010

 

Over the past decade the North American shale gas boom has affected all aspects of the natural gas industry, resulting in greater supply availability and security and in turn making gas increasingly cost competitive both within the region and globally. Given the dramatic shift in trajectory from the US being a net importer to a net exporter of gas, it is a unique and unprecedented example of how growth in domestic production can transform markets across a region. The US is truly experiencing a “golden age” of gas.

The dramatic supply growth experienced in the US in turn resulted in a significant decline in gas prices. Such a dramatic improvement in cost competitiveness quickly led to gas becoming competitive with other fuels, thus natural gas has gained share across all sectors of energy use in the US.

For in depth data analysis, figures and case studies, browse the full Global gas report pdf version.

 

North America Drivers Comments
Henry Hub the lowest major gas index price globally (<$3.5/MMBtu) Cost Competitiveness Gas now competitive with coal for power generation
Stable production growth at an average of 3.2%

Significant pipeline capacity connecting the region

Substantial LNG import capacity - recent growth in Mexico

 

 

Availability and supply security

From net importer of gas to net exporter

High degree of internal interconnections
Increasing concern and regulatory action on methane fugitive emissions

Sustainability

The industry is being challanged to realize even Greater GHG reduction potential through control of fugitive emissions

Europe

 

icona gas naturale Europe gas consumption

 

+3.6% p.a.

GAS CONSUMPTION SHRANK 2010-2015

 

 

GAS COMPETITIVENESS
HAS BEEN THREATENED
BY FALLING COAL PRICES

 

Between 2010 and 2015, European gas consumption shrank by 3.6% per year, largely due to a decline in the power generation sector where gas was displaced by a combination of coal and renewables. While consumption has rebounded in 2015 and 2016, it is still nearly 70bcm below 2010 levels.

This consumption decline was due in part to the economic recession across the region and increasing energy efficiency but also significantly due to challenges of cost competitiveness against other fuels and the impact of policies aimed at improving sustainability of the power sector through the rapid development of renewable generation capacity. Meanwhile, declining domestic production led to the rising of import dependence.

Meanwhile, the price of carbon under the European Union Emissions trading scheme fell during that period, eliminating a cost incentive for gas relative to coal. As well as the higher competitiveness of coal, Europe adopted a set of climate change mitigation policies which directly drove the development of renewable power generation capacity. Given that wind and solar have near zero variable costs for operation, once capacity was developed it displaced other sources of power including gas.

Further contributing to the shift away from gas in Europe was declining gas production within the region, which fell by c.60bcm over the period. This contributed to a growing reliance on imports, introducing challenges to future security of supply. In response, the European Union and member countries have moved to expand LNG regasification capacity, pipeline interconnections and storage to reduce vulnerability to potential supply shocks.

For in depth data analysis, figures and case studies, browse the full Global gas report pdf version.

 

Europe Drivers Comments
NBP declining and by 2017 <$4/MMBtu

Gas increasingly cost competitive with coal, but still higher LCOE

 

Cost Competitiveness

European gas prices are not yet competitive with coal for power generation at current carbon price levels
Declining production

Substantial supply reliance on Russian imports

Significant and growing LNG import capacity

 

Availability and supply security

Import dependence on Russia has been a focal point of European debate

European LNG import capacity could increase internal supply security with West-East interconnections
Increasing pressure on methane emissions

Concerns about long-term sustainability of gas in a decarbonized world

 

Sustainability

Strong policy support for renewable energy sources including shift to bio-methane

Asia

 

Gas consumption has grown significantly in Asia, averaging 3.2% per year from 2010 through 2015. However, much of that growth has been driven by China specifically. Excluding China, the consumption growth rate across Asia has been a much more modest 1.2% p.a. The critical driver in limiting growth within the region has been the cost competitiveness of gas vs. coal.

Gas security of supply in Asia has improved significantly over the past five years given substantial expansion in gas production up 500bcm, development of LNG import capacity up c.330bcm and new pipeline connections. The sustainability of gas is a key benefit recognized within the region. Given the widespread challenge of urban air pollution, gas is seen as a solution to balance lower emissions with economic development.

For in depth data analysis, figures and case studies, browse the full Global gas report pdf version.

 

Asia Drivers Comments
Though costs are declining, it is still the highest index price globally Cost Competitiveness Gas is not competitive with coal in the region
Limited domestic gas availability in many countries

Increasing LNG regas capacity contributes to improving supply security

 

Availability and supply security

Gas is perceived as less secure than domestically produced coal (where available)

Infrastructure, while growing, does not allow for market liquidity
Gas is perceived as a solution to strong regional concerns on emissions and air quality

Gas consumption growth underpins many countries'NDCs under the Paris agreements

 

Sustainability

Sustainability drives policy support for gas

Middle East

 

As the largest exporting region for natural gas, the Middle East has substantial supply availability and highly cost competitive gas supplies. Relative to other fuels, gas provides a high degree of supply security vs. coal given there is practically no production in the region. Compared with oil, gas is significantly lower cost on an energy basis.

This combination of supply availability and competitive prices has resulted in high levels of gas penetration in the region. Beyond market-led fuel switching, government policies in the region are driving Greater gas consumption.

 

Middle East Drivers Comments
Rising cost of domestic production (ex-Qatar) but still competitive globally Cost Competitiveness Displacement of high cost oil in power generation
Substantial natural gas production and reserves

Growth of LNG regasification capacity for importing countries

 

Availability and supply security

Perceived as ample and secure
No significant challanges to gas sustainability Sustainability Low emissions seen as beneficial for minimizing urban air pollution across the region
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updated
03 October 2017 - 11:02 CEST