American Oil and Gas Reporter - August 2018 - 46

China becomes the largest natural gas importing country by 2019, leading Asian
gas market growth. An increasing role for
natural gas in every sector of China's
economy is backed by strong policy support
from the country's 13th five-year plan.
China's demand grows at an average
of 8 percent a year throughout the forecast
period, the report states. The share of
imports in China's supply rises from 39
percent to 45 percent during the fiveyear forecast period. Other emerging
Asian economies increase their natural
gas consumption for industry (including
fertilizers and petrochemicals) and power
generation, and develop their domestic
markets and infrastructure to import more
LNG, IEA forecasts.
Gas-rich regions, led by the Middle
East and North America, also experience
sustained consumption growth, Gas 2018
foresees. The Middle East sees continuous
growth throughout the forecast period, primarily led by increasing needs in industry,
power generation and seawater desalination.
In the United States, IEA says the abundant
gas supply encourages further use of gas
in chemicals and other industry sectors.
The rebound in natural gas availability
and use in Egypt plays a large part in the
increase in African consumption, the
agency says, while Latin American markets
are reforming to develop the role of domestic production. Consumption in Eurasia
slightly decreases because of sluggish
economic growth, Gas 2018 predicts.
Mature net importing markets such as
Europe, Japan and South Korea are expected to see their gas demand stagnate.
"Price competitiveness and market reforms will be critical to sustaining natural
gas demand growth in emerging markets,"
IEA says. "Emerging markets are much
more sensitive to price levels than traditional buyers; competitiveness of natural
gas, either sourced from domestic production or imported, therefore is a crucial
factor in sustaining such demand growth."
Industrial Demand
Natural gas used for power generation,
once the primary source of growth, expands
slowly amid tougher competition among
generation fuels, IEA projects. Power
46 THE AMERICAN OIL & GAS REPORTER

generation accounted for nearly half of
the growth in gas consumption during
the past decade, helped by abundant fuel
supplies in mature markets, fuel switching
from oil in emerging markets, and the reduction in nuclear generation in the aftermath of Japan's Fukushima Daicchi reactor
accident. Gas 2018 says during the projection period, gas for power generation
continues to grow in North America and
the Middle East driven by cheap domestic
resources, but slower global electricity
demand growth, the rapid rise of global
renewable electricity production and tough
competition from coal, particularly in
Asia, limits its global growth prospects.
Industry emerges as the main driver of
gas consumption growth in the IEA forecast,
with the industrial sector expected to
account for 40 percent of the increase, replacing power generation as the main
driver. Gas 2018 notes that incremental
industrial uses cover both energy for processes and feedstock for chemicals, including
fertilizers in emerging economies and feedstock for petrochemicals for exports in regions with abundant natural gas supplies.
The United States accounts for the largest
share of supply expansion, with the production outlook given a boost by the gas
associated with tight oil output, IEA says.
Shale gas now accounts for two-thirds of
the nation's total output. Shale gas from
the Appalachian (dry gas) and Permian
(mainly associated gas) basins are the main
pillars of domestic production growth. The
agency predicts they will continue to grow,
with the Permian taking the lead as recovering oil prices favor investments in U.S.
light tight oil production, increasing associated gas output. Two-thirds of the additional
U.S. production is exported by pipeline to
Mexico or as LNG globally.
Most of the gas output increases from
other major producing areas, such as the
Middle East, China and Egypt, is dedicated
to domestic markets, the agency says.
Outside of the United States, Australia
and the Russian Federation are the main
contributors to export growth. Russia is
seeking to diversify its export outlets
through new export infrastructure, with a
pipeline to China and LNG export terminals,
Gas 2018 reports. By contrast, Europe's

domestic supply deficit increases with the
progressive depletion of North Sea production and the phasing out of the Groningen field, calling for additional LNG and
pipeline imports to bridge the gap.
A Tighter LNG Market
IEA warns that after a period of ample
supply, by 2023 the LNG market could
start to tighten. The wave of LNG export
projects adds 4.9 Tcf of liquefaction capacity between 2018 and 2023, Gas 2018
predicts, increasing global capacity by
nearly 30 percent. More than half of this
expansion takes place in the United States.
In comparison, pipeline expansion is
more limited, mainly happening in North
America (United States to Mexico) and
from Eurasia to Europe and China.
The emergence of the United States
as a global exporter challenges the traditional features of LNG trade, the agency
notes. This wave of liquefaction projects,
expected in the coming two years, ensures
ample supply and growth of LNG trade,
but also challenges the traditional feature
of supply contracts. Gas 2018 says the
emergence of U.S. exports with flexible
destination and gas-indexed pricing presents different models from the standard
fixed-delivery, oil-indexed supply agreements. Australia and the United States
appear as new global players likely to
challenge Qatar in Asian markets.
A lack of projects post-2020 could
tighten the market, IEA projects, with
nearly all new liquefaction capacity likely
to be operating by then. In the short run,
this massive capacity addition is likely
to result in a surplus, increasing competition among suppliers for customers.
Gas 2018 cautions that it will take time,
especially for new customers, to construct
receiving infrastructure.
This loose market could be short-lived
owing to the dynamic growth in Asian
emerging markets, IEA says. "Without
new investments, the average utilization
rate of liquefaction is likely to return to
its pre-2017 level by 2023. Owing to the
long lead time of such projects, investment
decisions need to be taken in the next
few years to ensure adequate supply beyond 2023," Gas 2018 says.
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American Oil and Gas Reporter - August 2018

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