Natural Gas

The outlook for gas demand in China is one of the most important questions facing the global gas market, as it will have significant consequences for gas producers and consumers across the world. The rapid rise in China’s gas demand has been catalysed by environmental concerns, in particular air quality, in the country’s major cities and the authors of this report, Akira Miyamoto and Chikako Ishiguro, provide a detailed analysis of the progress that has been made in introducing environmental legislation to pursue the goal of cleaning up China’s skies. They consider the impact that this has had on gas consumption in China over the past decade before analysing the major goals of the Blue Sky Action Plan and outlining its potential consequences for gas demand over the next two to three years.

Modelling studies suggest that COP21 targets can be met with global gas demand peaking in the 2030s and declining slowly thereafter. This would qualify gas to be considered a `transition fuel’ to a low carbon economy. However, such an outcome is by no means a foregone conclusion. There are limited numbers of countries outside the OECD which can be expected to afford to pay wholesale (or import) prices of $6-8/MMbtu and above, which are needed to remunerate 2017 delivery costs of large volumes of gas from new pipeline gas or LNG projects. Prices towards the top of (and certainly above) this range are likely to make gas increasingly uncompetitive leading to progressive demand destruction even in OECD countries. The current debate in the gas community is when the `glut’ of LNG will dissipate, and the global supply/demand balance will tighten. The unspoken assumption is that when this happens – generally believed to be around the early/mid 2020s – prices will rise somewhere close to 2011-14 levels, allowing a return to profitability for projects which came on stream since the mid-2010s and allowing new projects to move forward. Should this assumption prove be correct, it will create major problems for the future of gas. The key to gas fulfilling its potential role as a transition fuel up to and beyond 2030, is that it must be delivered to high income markets below $8/MMbtu, and to low income markets below $6/MMbtu (and ideally closer to $5/MMbtu). The major challenge to the future of gas will be to ensure that it does not become (and in many low-income countries remain) unaffordable and/or uncompetitive, long before its emissions make it unburnable.

The EU has so far mostly focused on the electricity sector to reduce her greenhouse gas emissions. To meet its target, though, Europe will have to focus on other sectors, such as heating and cooling. The latter is Europe's single largest energy consumer, covering half of Europe's energy demand. 42% of Europe's current energy supply comes from natural gas. Therefore, the gas industry needs to understand the implications of the decarbonisation of the heating and cooling sector on natural gas demand.
However, the role of those sectors in the natural gas demand is still not properly understood. This paper tries to fill this vacuum by studying the heating and cooling sector in Europe, with a special focus on the implications for the gas industry, especially for the natural gas demand.

This paper looks at the implications of the 2015 Paris Agreement for renewables, energy efficiency and natural gas and draws conclusions on the limitations of renewables for meeting national and international climate targets, illustrated by the past and present German renewable-focused approach. It discusses the need to complement an all-electric renewable approach with the important contribution decarbonized natural gas can make to meet the decarbonisation targets of the Paris Agreement within the time frame given by it. Finally, it illustrates the overlap of EU decarbonisation and German renewable policy and how this hinders short term fuel switching to natural gas and possible remedies. Throughout the paper “gas”, unless otherwise specified, should be taken to mean “natural gas”.