Global demand for natural gas will rise a faster-than-expected 2.7% annually through 2017 to 3.94 trillion cubic meters, with China and the US leading growth as both countries switch from coal to gas to generate electricity, the International Energy Agency said Tuesday.
Over the five year-period, gas demand will grow 17%, or 576 billion cu m, equivalent to around 90% of Russia's current gas production, according to the IEA's new medium-term outlook for gas markets.
The new higher gas demand growth estimate is up from the 2.4% annual growth rate from 2010 to 2016 IEA predicted last year, reflecting mostly the continued surge in shale gas output from the US.
China remains the fastest-growing market and its consumption is expected to double to 273 billion cu m in 2017 from 130 billion cu m in 2011, representing an average growth rate of 13% per year.
"To reach these levels, there are certain key policy issues regarding pricing and regulation that China is assumed to have tackled," the IEA said.
"In particular, the power generation sector is key and gas-fired plants need to be more competitive against coal-fired plants," the agency said.
China will emerge as the third-largest gas consumer by 2013 and by 2015, the country's gas consumption is expected to reach 223 billion cu m, requiring some 85 billion cu m of gas imports, the IEA said.
China last year was the fastest-growing gas market, seeing a 21% surge in demand and despite fast-growing domestic production the country is projected to import some 109 billion cu m of gas by 2017, IEA said.
The IEA's latest estimate comes a week after it said world demand for natural gas could rise more than 50% by 2035 from 2010, but only if a significant portion of the vast global resources of shale gas, tight gas and coalbed methane can be developed profitably and in an environmentally acceptable way.
IEA said the surge in US production of unconventional gas, thanks to technology advances, held out the prospect of further output increases in the US and Canada and the large-scale unconventional gas industry in other parts of the world.
Gas could take a 25% share of the global energy mix by 2035, overtaking coal to become the second-largest primary energy source after oil, the IEA said last week in a special report.
Global gas demand in 2011 rose a relatively feeble 2% to 3.36 trillion cu m, dragged down by the debt-crisis and mild weather in Europe, the IEA said. RECOVERY IN US GAS PRICES
In the US, the IEA said it expects gas demand will surge by about 90 billion cu m in 2017, with the power generation accounting for nearly 75% of the predicted growth.
Due to booming shale gas output and low prices, US gas demand is projected to rise from an estimated 690 billion cu m in 2011 to 779 billion cu m in 2017, continuing to fuel a switch from coal to gas-fired power generation, IEA said.
IEA said next year will likely be a turning point for depressed US gas prices, with lower investments and shut-ins helping to fuel a recover to $3.50/MMBtu in 2013, from an estimated low of $2.50/MMBtu in 2012.
"US gas prices are currently far below production costs [and] we don't expect this situation to be sustainable," Didier Houssin, IEA's head of energy markets and security, said.
Based on the current forward curve of US gas prices, the IEA is assuming prices of $5/Mm Btu by 2017, he said.
A progressive increase in gas prices will stabilize the growth of industrial gas demand after 2015 in the US and Canada, but gas by the sector will rise by some 32 billion cu m over 2011-17, the IEA said.
In OECD Asia, gas demand is expected to increase from 195 billion cu m to 241 billion cu m over 2010-17, with the biggest increase coming from the power generation sector.
Japan will be the key swing factor in the region with a likely, but unpredictable, greater use of gas demand as the country scales back nuclear energy use in the wake of Fukushima, IEA said.
IEA's demand estimate is based on the assumption that about half of Japan's 2010 nuclear output levels will have resumed operations in 2017, leaving the country's gas demand gas at 129 billion cu m that year, Houssin said.
In Europe, demand is projected to increase modestly from 520 billion cu m in 2011 to 561 billion cu m by 2017, but still below 2010 levels due to growing competition from state-backed renewable fuels and coal, the IEA said.
RUSSIA, FSU COUNTRIES KEY PROVIDERS OF ADDITIONAL SUPPLY
On the supply side, the IEA said Russia and other former Soviet Union countries are expected to be the largest providers of additional gas supply, although that will be constrained by "sluggish" gas demand from traditional export markets in Europe.
In the US, shale gas output is expected to continue in "full swing", despite the current low gas prices affecting some projects.
"US domestic production continues to grow, and by the end of the projection period, the first LNG export projects will see the light of day. This is a welcome addition to a market which is expected to become increasingly tight over 2012-14," the IEA said.
By 2017, Asia's gas output will increase by 26% to 111 billion cu m, with 61 billion cu m coming from China alone, the IEA estimated.
In China, gas production is increasing at the fastest pace in the Asia, but it still won't be enough to keep pace with a projected 13% annual demand increase over the period, IEA said.
Production is projected to reach 141 billion cu m by 2015 and 163 billion cu m by 2017, from an estimated 102 billion cu m in 2011.
"But outcomes could vary widely depending on prices, pricing reform and access to and development of the infrastructure, IEA said.
In the Middle East, gas production is expected to slow "considerably" over the coming five years, the IEA said, growing from an estimated 516 billion cu m in 2011 to 588 billion cu m in 2017. LNG TRADE
Under IEA's projections, global gas trade will rise 35% over the 2011-17 period, driven by both pipeline gas and LNG, with a total LNG capacity growing by 500 billion cu m over the period.
During the period US is set to become a net exporter of LNG, IEA said, adding that it has not modelled planned US LNG export projects as none has progressed to a final investment decision.
The IEA also said it expects to see a significant slowdown in global LNG trade over the coming three years before accelerating again in 2015, as a new wave of Australian LNG and exports from the US are projected to come online.
Markets will become increasingly tighter until mid-2014, as only 25 billion cu m out of a total liquefaction capacity of 114 billion cu m under construction as of late April 2012 is planned to come online over 2012-13.
Over 2011-17, most additional LNG exports are projected to come from Australia as well as from Africa and North America, the IEA said.
