Natural gas in the world energy mixPeter Fraser, Head of Gas, Coal and Power Markets

Presentation to IGU Executive Committee Workshop, Muscat, Oman 30 March 2017

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Natural gas sharein the global energy mix

World total primary energy demand in 2014

In 2014, the fossil fuel share accounts for 81% of the world’s TPED

Coal 29%

Oil31%

Gas21%

Nuclear5%

Hydro3%

Bioenergy10%

Other renewables

1%

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Change in global primary energy demand

Low-carbon fuels & technologies, mostly renewables, supply nearly half of the increase in energy demand to 2040

Low-carbon

Oil GasCoal

500

1 000

1 500

2 0001990-2015 2015-2040

Mto

e

Low-carbon

Oil GasCoal

Nuclear

Nuclear

Ren

ewab

les

Ren

ewab

les

Rest of world

EuropeanUnionLatin

America

India

US

Africa

China

SE Asia

A new fuel in “pole” position

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A wave of LNG spurs a second natural gas revolution

Share of LNG in global long-distance gas trade

Contractual terms and pricing arrangements are all being tested as new LNG from Australia, the US & others collides into an already well-supplied market

2014685 bcm

20401 150 bcm

2000525 bcm

LNG53%

PipelinePipelineLNG42%

Pipeline

LNG26%

5 © IEA 2016

In the medium term:Growth in global gas demand slows

Growth in gas demand slows as it faces greater competition in the power sector; yet it is the only fossil fuel that does not suffer a decline in its share of the energy mix

0

100

200

300

400

500

600

2009-15 2015-21

bcm

Change in world natural gas demand

Change in total gas demand

2.5 % 1.5 %

Change in per cent

6 © IEA 2016

China drives increase in global gas demand, as the United States takes a back seat

US gas demand growth slows sharply, driven by stagnation in the power sector;EU gas demand gradually recovers on coal & nuclear power plant retirements

-100

-50

0

50

100

150

China Middle East United States India EU Korea and Japan

bcm

Change in natural gas demand by region (bcm)

2009-15 2015-21

7 © IEA 2016

Growth in gas production is led by the United States and Australia

The United States & Australia rather than the more establishedexporters – Russia, Qatar & ASEAN – are the main source of production growth

-100

-50

0

50

100

150

200

United States Australia Qatar China Russia ASEAN EU

bcm

Change in natural gas production by region (bcm)

2009-15 2015-21

8 © IEA 2016

Global LNG export capacity increases sharply

LNG capacity additions will be led by the US & Australia over the next five years; projects in Canada & East Africa could also move ahead if demand & prices recover

0

40

80

120

160

200

2009-15 2015-21

bcm

Liquefaction capacity additions

Australia Qatar U.S. Others

9 © IEA 2016

As imports from Japan & Korea are set to decline, the rebalancing of global markets will depend on the rate of expansion in China & other developing Asia

Developing Asia emerges as key engine of LNG import growth

-40

0

40

80

120

160

2009-15 2015-21

bcm

Change in LNG imports by region

India China Other developing Asia EU Korea + Japan

10 © IEA 2016

86%

88%

90%

92%

94%

96%

98%

11 12 13 14 15 16 17 18 19 20 21

Utilization rate

Liquefaction plants to run below capacity amid supply glut

Note: nameplate capacity has been adjusted to reflect outages, and feed-gas issues

Oversupply in the market will get worse before it gets better. This will put pressure for increased flexibility in contracts and a reduced linkage to oil.

11 © IEA 2016

Share of fixed destination(%)

Contract length(year)

Signed up to 2014 Signed in 2015

Contract length(years)

LNG contract structures are becoming less rigid – increasing market efficiency

16

11

60 %

40 %

17

Fixed Flexible

Share of fixed destination(%)

Contracts with flexible destinations & shorter terms are becoming more common;buyers will accept longer contracts in exchange for increased destination flexibility

12 © IEA 2016

Aggressive emissions reduction impacts other fossil fuels more than gas

(2014 – 13684 Mtoe)

World total primary energy demand

450 scenario (2040 – 14878 Mtoe)

World total primary energy demand

Coal 29%

Oil 31%

Gas21%

Nuclear5%

Hydro3% Bioenergy

10%

Other renewables

1%

Coal 13%

Oil 22%

Gas22%

Nuclear11%

Hydro4%

Bioenergy16%

Other renewables

12%

In the 450 scenario, natural gas share grows slightly, although fossil fuels’share decreases to 57% of the world’s TPED

13 © IEA 2016

• The World Energy Outlook (WEO) “New Policies” case to 2040 shows natural gas as the fossil fuel with the biggest growth.

• This growth is made possible by increased production and use of LNG.

• In the medium term, LNG production is increasing despite an already well supplied market leading to excess capacity and more flexible contracting for LNG.

• More aggressive emissions reduction “WEO 450” will slow global gas demand growth, but it still grows.

Key messages