Global Gas Report 2020
Consumption towards post-Covid recovery, with hydrogen -37% CO2 emissions in the energy sector.
Watch the interview with Marco Alverà, Snam CEO, to discover the key highlights of the report.
The global gas industry continued to grow strongly in 2019, reaching new landmarks on consumption and international trade. Prices have seen historic lows thanks to abundant supply, supporting the competitiveness of gas. Covid-19 is causing significant uncertainty in the global economy and the gas sector, but technological innovation and policy support can help the industry to bounce back strongly.
In this fourth edition of the Global Gas Report, we assess the key drivers currently shaping the natural gas industry, explore the potential impact of Covid-19 in the next 2-3 years and look at the long-term role of gas in the energy sector from the lenses of sustainability, competitiveness and supply security.
We find that:
- Cost-competitiveness is enabling new demand. Recent low gas prices around key global hubs, in part due to the pandemic, have garnered much attention. However, rising supply and affordable prices were already enabling record gas demand in 2019 in key growth markets like China. LNG imports also hit record highs in Europe, supported by increasing carbon prices. A significant part of the growth came from coal-to-gas switching in major markets like the U.S. and China.
- Security of supply is increasing. Important new pipeline routes from Russia to China and Europe were commissioned in 2019, and new takeaway capacity has been built in the critical supply region of the Permian Basin in the U.S. A record number of LNG export projects were approved last year. Once commissioned, these will deliver close to 97 billion cubic meters per year of new LNG supply to the market. Future supply growth is expected to be led by the Middle East, but the U.S., Russia and Iran are expected to remain the top-producing countries in the medium and long term. China has seen domestic supply rise by a third in the last five years, and could double its production by 2040.
Propelled by growth on the supply side, new LNG import terminals are being built in markets like Southeast Asia to ensure gas delivery to the power and industrial sectors, as domestic supply wanes.
- Sustainability and enabling policy will define the future of the gas industry. Clean air policies have provided an impetus for gas consumption in major markets like China, where gas can displace coal. Similarly, in Europe and the U.S., coal displacement by gas is leading to better outcomes for air quality and carbon emissions. Slowly and steadily, other countries, like India, are following suit. Policies focused on clean air will provide growth opportunities for the gas industry in this decade. The recent regulations from the International Maritime Organization will also open up avenues of growth for LNG to be used as a major fuel in the shipping industry. And the role of gas-fired power generation as a flexible resource to complement growing renewable generation is becoming more established.
- Gas technologies can play a major role in the low-carbon transition. As countries and regions pursue a low-carbon transition, technologies such as biomethane, hydrogen and gas with carbon capture could play an important role, serving to decarbonize sectors of the economy that are currently seen as ‘hard to abate’, and providing opportunities for long-term growth for the gas industry. However, investment and policy support are needed to scale up these solutions.
- The current level of excitement around hydrogen presents an opportunity. Hydrogen is starting to garner policy support and, with enough investment, could abate up to 37% of energyrelated greenhouse gas emissions, according to BloombergNEF estimates. While clean hydrogen is not yet cost-competitive in many applications, delivered costs could reach around $2/kg in 2030, and $1/kg in 2050, opening up possibilities in a variety of applications. These include steel and cement making, chemicals, aviation, shipping and heavy-duty transport. For hydrogen to achieve its potential, not only will strong policy action be needed to drive scale, but there will also be a significant need for infrastructure investment. Large-scale hydrogen networks will be necessary to connect high-quality production and storage resources to users, which can help lower supply costs, increase security, enable competitive markets and facilitate international trade.
- Infrastructure investment can propel demand growth for gas, and prepare the ground for hydrogen. Both LNG and pipeline infrastructure will be critical to deliver continuous supply to endusers. Between 2019 and 1Q 2020, 11 new LNG import terminals were commissioned, with India leading the way. The country is planning to almost double the length of its gas transmission pipelines and raise the number of households connected to the gas grid six-fold. Similarly, China is aiming to grow its transmission pipeline network by 60% by 2025. Gas storage will also play an important role in balancing the market and reducing volatility. Storage facilities in Europe, including Ukraine have already proved critical in balancing the global LNG market in the first half of 2020. China is also aiming to raise storage capacity to 10% of its demand.
As the energy transition proceeds, gas transport and storage infrastructure can be readied for hydrogen blending, and indeed for pure hydrogen transport, at much lower cost than constructing new purpose-built hydrogen networks.
- New market mechanisms are fuelling trade growth. Global gas trade is being facilitated by a combination of market deregulation, establishment of trading hubs and growth in financial derivatives. Many markets, including China, are pushing for third-party access to LNG import and gas transmission infrastructure. India has recently launched a gas trading exchange with three delivery locations, and Spain is aiming to start is virtual trading hub this year. As new hubs and pricing benchmarks are established, liquidity in financial derivative contracts for gas-linked prices is steadily increasing too. These efforts will support the commoditization of gas and LNG, and help manage risk.
It remains difficult to assess the future impact of Covid-19 on the global economy, the energy sector and the gas industry. Initial assessments suggest that gas demand may decline 4% in 2020 and BloombergNEF estimates that global LNG demand will shrink by 4.2% this year, assuming the outbreak is contained by early 2021. The industry is expected to rebound quickly in 2021 and beyond, but it may be too early to gauge the full impact.
- 24.2% Gas share in primary energy mix
- +2.3% Gas demand growth
- +3.5% Gas production growth
- +13% Growth in LNG trade
- -37% Change in gas prices at key global hubs(1)
1) Average of Henry Hub, TTF, and Japan Korea Marker (JKM) for 2019 vs 2018.
24 August 2020 - 18:02 CEST