BP’s Energy Outlook 2018 explores different aspects of the energy transition through a range of alternative scenarios. These scenarios have some common features, such as a shift towards a lower-carbon fuel mix, but they differ in terms of assumptions on policies or technology. The Evolving Transition (ET) scenario assumes that government policies, technology and social preferences continue to evolve in a manner and speed seen over the recent past.
In the ET scenario, gas demand is projected to increase by 1.6% p.a. over the period 2016-40, reaching 502 Bcf/d by 2040, up from 342 Bcf/d in 2016. This means that gas grows faster than oil (0.5% p.a.) and coal (0.0% p.a.), but less than renewables (7.0% p.a.). Gas becomes the second largest fuel consumed for primary energy demand, with its contribution exceeding that of coal as soon as the early 2020s and nearing that of oil by 2040 (26% against 27%). But ET’s scenario’s carbon emissions are not consistent with achieving the COP21 goals.
Gas demand growth in the ET scenario is largely supported by developing countries through industrialisation and electrification. In particular, the Middle East and Africa, combined, account for over 30% of this growth, supported by their domestic gas resources. China alone accounts for one quarter, driven in part by coal-to-gas switching, and other parts of Asia for 14%. North America, representing 20% of incremental gas demand, is an exception within the OECD, reflecting the abundance of cheap gas resources.
Such bright prospects for the future of natural gas could nevertheless be challenged. The strong growth of gas in the power and industrial sectors in the ET scenario – around 70% of the incremental demand – could be constrained by either weaker or stronger environmental policies. Weaker policies could, for example, prompt less coal-to-gas switching in countries with little access to cheap domestic gas supplies, with a negative impact on gas demand. Meanwhile, alternative scenarios featuring more comprehensive climate policies, leading, for example, to a more rapid development of renewables and energy efficiency lead to lower gas demand growth.
The US and the Middle East lead supply growth in the ET scenario, accounting for almost half of the additional supplies. The United States alone account for almost a quarter of global gas output by 2040, well ahead of the Middle East and Russia. Almost 40% of US production increase will feed LNG export plants, with the rest being consumed in North America; in contrast, increased production within the Middle East mostly supports domestic demand.
LNG trade more than doubles over the Outlook period in the ET scenario, reaching 75 Bcf/d by 2040, up from 33 Bcf/d in 2016. The US emerges as the largest contributor of LNG volumes (around 40%), such that the US and the Middle East each represent almost a quarter of total LNG exports by 2040. Other regions such as Africa and Russia also support LNG expansion. The rise of US LNG exports contributes to changes in terms of contractual practices as well as the rise in LNG trade flexibility and liquidity, continuing a trend observed over the past few years of destination flexibility, a strong presence of portfolio players, small volumes and shorter-term contracts. Against that background, Asia remains by far the largest LNG importing region (70% of global imports), with the weight of imports shifting from traditional buyers such as Japan and Korea towards China, India and other emerging Asian countries. Other regions such as Africa, the Middle East and Latin America combined LNG imports reach almost 10 Bcf/d by 2040 but they remain relatively niche markets. Meanwhile, Europe remains the key balancing market and the key battleground between Russian pipeline gas and LNG imports.
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