Examining major issues that will shape energy supply and demand through to 2035 and beyond, the latest issue of the annual BP Energy Outlook highlighted, among others, that LNG supplies more than double over the Outlook period (2015-2035), with around 40% of this expansion occurring over the next five years.
Namely, natural gas grows strongly, supported by broad-based demand, strong increases in low-cost supplies, and continuing expansion of supplies of LNG increasing the availability of gas globally. In the evolving transition (ET) scenario, natural gas growth is supported by a number of factors:
- increasing levels of industrialization and power demand (particularly in emerging Asia and Africa);
- continued coal-to-gas switching (especially in China); and
- the increasing availability of low-cost supplies (in North America and the Middle East).
As explained, the sustained growth in global LNG supplies greatly increases the availability of gas around the world, with LNG volumes overtaking inter-regional pipeline shipments in the early 2020s. While this growth is concentrated over the next few years, slower increases follow over the remainder of the Outlook.
In particular, LNG exports are dominated by the US and Qatar, which account for almost half of global LNG exports by 2040. But material increases are also projected in Australia as existing projects are completed, Russia, and East and West Africa.
Further, the increasing accessibility and competitiveness of gas associated with LNG helps to develop new and expanding markets, led by China together with some smaller Asian countries, such as Pakistan and Bangladesh. Europe remains a key market, both as a potential ‘market of last demand’ for surplus LNG cargoes and as a key hub of gas-on-gas competition between LNG and pipeline gas.
The mobility of LNG cargoes and their ability to be diverted in response to price signals causes the gas market to become increasingly integrated, with movements in global gas prices becoming more synchronized, BP noted.
In the meantime, Asian and European LNG markets will have an important bearing on global LNG trade, as they account together for the vast majority of LNG demand by 2040.
One question is whether Asia will provide a market for significant volumes of US LNG. A comparison of total Asian LNG imports with LNG exports from regions which are closer to Asia than the US and so have lower shipping costs, suggests that, in principle, there may be relatively little need for Asia to import LNG cargoes from the US.
However, in practice, both LNG sellers and buyers see value in diversifying their portfolios, and so significant quantities of US LNG are likely to be exported to Asia.
In Europe, domestic gas production is set to roughly halve over the Outlook causing the share of imported gas in total consumption to increase from around half in 2016 to three-quarters by 2040.
In the ET scenario, the development of a globally integrated gas market limits European concerns about becoming overly dependent on gas exports from Russia, allowing Russia to broadly maintain its share of European gas imports. As such, the share of Europe’s total gas consumption met by Russian exports increases from around a third currently to almost half by 2040.
In the following video, BP’s chief economist Spencer Dale explores resilience of natural gas:
