The July 2014 edition of ZE DataWatch included the first In Depth article in this two-part series about geopolitical and market trends affecting the global natural gas market. Last month’s article discussed current events impacting global supply; this month’s post will address demand.

Introduction: Trends in Global Demand

The global natural gas market has become more dynamic in recent years, in part due to the substantial global increase in natural gas consumption (Figure 1).

Figure 1: Natural Gas Consumption around the World (Source: EIA--http://www.eia.gov) — Figure 1: Natural Gas Consumption around the World (Source: EIA–http://www.eia.gov)

It is clear that this demand will only increase further. The EIA projected an increase of 1.7 % annually between 2010 and 2035 in its last “Annual Energy Outlook” report.[1] BP expected an increase of 1.9% annually between 2012 and 2035 in its 2014 “Energy Outlook 2035.”[2]

Asian demand has been the largest driver of global natural gas market development recently. As shown in Figure 2, the biggest demand increase is expected in China. In OECD-Europe[3] countries, demand is projected to remain at a high level.

Figure 2: Demand by Region (Source: EDIA--http://www.edia.gov) — Figure 2: Demand by Region (Source: EDIA–http://www.edia.gov)

It is obvious that due to the partial switch from nuclear to gas in Europe’s power sector—the aftermath of the 2011 Fukushima nuclear disaster in Japan–natural gas has become more important as a global energy source.

Even if the Fukushima accident hadn’t happened, several developments would have posed attractive alternatives to nuclear power anyways: the reduction of coal-fired power generation in Europe and North America; increased intermittent wind generation; and clean-fuelled, quick-starting natural gas-fired generation. The operating cost differences between gas-powered generation and coal and nuclear generation are offset by meeting regulations. Overall, the increase in gas-fuelled power has driven natural gas demand.

As shown in Figure 3, Europe and Asia are expected to remain major natural gas importers in the coming years. Moreover, Europe is expected to increase its natural gas imports due to growing demand and declining domestic production, mainly in the U.K. and the Netherlands. The Asia Pacific is expected to become the largest importing region in ten years. China and India are constantly increasing their exports and will remain the biggest market players in the near future.

Figure 3: Regional Net Exports (Source: BP--http://www.bp.com/content/dam/bp/pdf/Energy-economics/Energy-Outlook/Energy_Outlook_2035_booklet.pdf) — Figure 3: Regional Net Exports (Source: BP–http://www.bp.com/content/dam/bp/pdf/Energy-economics/Energy-Outlook/Energy_Outlook_2035_booklet.pdf)

As the global natural gas market has been in the process of developing, the structure by which gas is imported has changed. With shale gas development in the U.S. and new liquefied natural gas (LNG) export capacities that have come on stream in Qatar, imports of LNG are rising. It is apparent that Europe and Asia are major areas of interest and sources of conflict for the world’s biggest natural gas exporters. Current large exporters (Qatar, Russia) and potential exporters (the U.S.) are trying to use different strategies to increase their deliveries into these regions.

To read more, view the full version of the article here.

[1] “Annual Energy Outlook 2014—With Projections to 2040,” EIA, April 2014, accessed August 20, 2014, http://www.eia.gov/forecasts/aeo/pdf/0383(2014).pdf.

[2] “BP Energy Outlook 2035,” BP, January 2014, accessed August 20, 2014, http://www.bp.com/content/dam/bp/pdf/Energy-economics/Energy-Outlook/Energy_Outlook_2035_booklet.pdf.

[3] OECD – the Organization for Economic Co-operation and Development (OECD)–mainly includes European countries, North American countries, and Chili, Japan, Korea, Australia, and New Zealand.