MEETING NATURAL GAS DEMAND: GLOBAL AND REGIONAL CHALLENGES Block 3, Forum 13 paper

MEETING NATURAL GAS DEMAND: GLOBAL AND REGIONAL CHALLENGES

Anatoly Dmitrievsky, Oil & Gas Research Institute
Abstract: 1. Due to sustainable natural gas demand growth, the world gas sector has been developing fast during the past decades. In the 1980s, the average annual gas demand in Western Europe grew within 2.0-2.5%; starting from the 1990s, it rose by 3%, and by 2010 the demand will grow by 4%. In some developing countries, natural gas demand grows impressively: over 7-8%. 2. The share of gas in the world energy will grow from 23% in the late 20th century to 27% by 2020. 3. The proven world gas reserves are over 170.0 TCM. Production was over 2.4 TCM in 2000. In 2020, it will be 4.5 TCM, which makes it possible to meet the ever-growing gas demand. 4. Gas resources are distributed very unevenly over the Earth. The principal reserves belong to Russia and Middle East countries. 5. Non-uniform reserve distribution brings about the development of trans-regional and transcontinental systems of pipelines and the increasingly intense development of LNG business, although the gas pipeline network is insufficient, globally and regionally. 6. International gas trade shapes the world gas market. From 1970 to 1995, international gas sales grew 10-fold. The amount of gas sales will double by 2010 and triple by 2020. Besides traditional gas markets, new markets develop intensely, primarily in Asian-Pacific countries. 7. Convenient geographical location, immense reserves of natural gas, experience in construction of gas pipelines make it possible for Russia to supply gas both to traditional partners in Europe and to new buyers in the Asian-Pacific region.LNG sector development allows Russia to enter the markets in both Americas. All that determines the role of Russia at the global gas market. Its development depends on reliable gas supply to customers, gas market liberalization, and energy security of both producer and consumer countries. Introduction As far as the world gas market is concerned, the first decades of this century will be a period of intense rise in both production and consumption of natural gas. The growth rates of these parameters will be greater for gas than for any other energy resource (its global consumption is expected to increase at 2.4% per annum as opposed to 1.6% for oil and 1.4% for coal). The greatest rates of gas consumption growth will be typical for China (5.5% per year), African countries (5%), South Asia (4.7%), and Latin America (4.3%). Consumption growth rates in the OECD countries will be less by far (Western Europe 2.1%, the APR 2.3%, and the USA and Canada 1.7%). The geographical pattern of natural gas consumption would change under the impact of its faster growth in the developing countries, first and foremost in China, India, and other Asian states. Within the period of 20002030, the world consumption share of the OECD countries would drop from 52 to 49%, and that of the transition economy countries from 24 to 19%, while the share of the developing countries would rise from 21 to 32%. Natural Gas Proved Reserves As of the beginning of 2005, the world proved reserves of gas rose to 175.0 TCM. Half of the proved reserves (50.3%) are focused in the OPEC countries. The states with planned or transition economy own 33.3% of the world gas reserves. The share of industrially developed countries is 8.4%, and that of the developing countries is 8.0% (Fig. 1).

MEETING NATURAL GAS DEMAND: GLOBAL AND REGIONAL CHALLENGES Block 3, Forum 13 paper

Figure 1 Natural gas reserves distribution.

Among geographical regions, the Middle East ranks first with its 41%. The CIS countries run second with their 32%, and they are followed by Africa 8%, South and South-East Asia 4.9%, Latin America 4.3%, North America 4.1%, Europe (including the Baltic states) 3%, Australia and Oceania 1.7%, and Central Asia and the Far East 0.9%. More than half of the natural gas world reserves (57%) are in the subsurface of the following three countries: Russia (46.8 TCM), Iran (26.6 TCM), and Qatar (25.8 TCM). Natural Gas Production In 2003, natural gas was produced in 92 countries. Apart from the USA and Russia (with their gas production of 684 and 620 BCM, respectively), five more countries (Canada, Algeria, Iran, the UK, and Norway) produced over 100 BCM, and 10 countries (Indonesia, the Netherlands, Venezuela, the UAE, Saudi Arabia, Uzbekistan, Turkmenistan, Argentina, Mexico, and Malaysia) extracted between 50 and 100 BCM of gas. The world gas production share of these 17 countries is 81% (3229 BCM). Distribution of the world production shares by geographical regions complies with their distribution by groups of countries. The share is the greatest for North America and the CIS countries: overall production in the former reaches 27.7% and that in the latter is 24% of the world gas production. The shares of other regions in gas production are as follows: the Middle East 11.1%, Europe 11.3%, South and South-East Asia 8.3%, Africa 7.8%, Latin America 7.1%, Australia and Oceania 1.5%, Central Asia and the Far East 1.2% (Fig. 2).

MEETING NATURAL GAS DEMAND: GLOBAL AND REGIONAL CHALLENGES Block 3, Forum 13 paper

Figure 2 Natural gas production.

The world natural gas reserves are sufficient for 54 years. In the industrially developed countries, the reserves-to-production ratio (RPR) shows that they are sufficient for 11 years, in the developing countries for 92 years, while in the OPEC countries the parameter reaches 138 years. In the countries of planned or transition economy, the gas RPR is enough for 69 years. Among the world regions, the RPR parameter is at its maximum in the Middle East 202 years. The region includes the countries of the largest RPR: Iran (222 years) and Qatar (628 years). The CIS ranks world second in natural gas RPR 72 years. In the RPR descending order, other regions may be presented in the following sequence: Australia and Oceania 62 years; Africa 56 years, in that number North Africa 68 years, West and South Africa 101 years, Central Asia and the Far East 43 years, Latin America 33 years; South and SouthEast Asia 32 years, Eastern Europe 22 years, Western Europe 14 years, and North America 8 years. Natural Gas Consumption In 2003, world gas consumption rose to 2580 BCM (Fig. 3), which is by 30% more than in the early 1990s. In 19902003, the average annual growth of gas demand was 2.3%.

MEETING NATURAL GAS DEMAND: GLOBAL AND REGIONAL CHALLENGES Block 3, Forum 13 paper

Figure 3 Distribution of natural gas consumption.

Overall gas consumption in the industrially developed countries grew by 37% within 13 years time, the average annual growth being 2.9%. Their share in world gas consumption was almost unchanged: while in 1990 the share was 48%, it was 50.8% in 2003. In the developing countries, gas consumption during the 13-year period was growing at a faster rate of 10.6% per annum. The result was that the amount of gas consumed in these countries rose 2.4 times, and their share in world consumption grew from 13.4% to 24.5%. In the countries of planned or transition economy, on the contrary, due to the overall economic decline in the early 1990s, gas consumption dropped by 17.2%. The share of these countries in world gas consumption decreased from almost 39% in 1990 to 24.7% in 2003. Following 1995, their demand for gas commenced to grow again at the rate of 0.6% per year. The ratio of gas consumption to own production is different: in the industrially developed countries, it is 83%, that in the developing countries 120% (in that number, in the OPEC countries 149%), and that in the countries of planned or transition economy 114%. Among geographical regions, the largest gas consumers are North America, Europe and the CIS. North America ranks world-first in gas consumption with its 759 BCM, or 29% of the gas consumed all over the world in 2003, including the USA with their 674 BCM, or 26%. To date, the region is completely supplied with its own gas for all practical purposes. In 2003, European gas consumption amounted to 507 BCM (approximately 20% of world consumption). Self-reliance reaches only 62%. The principal consumers are the UK (95 BCM), Germany (94 BCM), Italy (76 BCM), and France (44 BCM). In the CIS, 2003 gas consumption was 522 BCM (20.2%), including that of Russia 330 BCM (12.8% of world consumption). The CIS countries use 78% of gas produced, and the rest is exported. The Middle East countries own 8.9% of gas used all over the world 230 BCM. In 1990 2003, its amount grew 2.3 times. The major consumers are Iran and Saudi Arabia 71 and 52 BCM, respectively (in 2003). Since 1990, the region of South and South-East Asia has increased its gas consumption 2.6 times, reaching 171 BCM. There are a number of countries there consuming gas at intensely growing rates: India, Pakistan, Malaysia, Thailand, and Indonesia. Gas consumption varies in them within the range of 2534 BCM. The region possesses more natural gas than it needs, and its ratio of gas consumption to own production is 140%.

MEETING NATURAL GAS DEMAND: GLOBAL AND REGIONAL CHALLENGES Block 3, Forum 13 paper On the contrary, Central Asia and the Far East can rely on their own gas production only at 25% of their consumption. Their gas demand is 5.9% (151 BCM) of world demand. Every country in the region, except China, depends almost entirely on gas import. The largest gas consumer, ranking sixth in the world, is Japan (83 BCM). During the past 13 years, gas demand in the region more than doubled. In Latin America, gas consumption is almost completely balanced with its production. In 2003, the region consumed 143 BCM (5.5%), which is 2.4 times more than in 1990. The major gas consumers are Argentina (34.9 BCM), Venezuela (26.4 BCM), and Mexico (37 BCM). Overall gas consumption in Africa reaches 67 BCM (2.6%). Most of the African countries consume gas at a very low level. Two thirds of the gas are consumed by Algeria and Egypt (22 and 24 BCM, respectively). There is an excess of gas in the region almost half of the gas produced is exported beyond its boundaries. In Australia and Oceania, gas consumption is 29 BCM (1.1%), in that number about 23 BCM in Australia. Gas production is almost 1.4 times greater than demand for gas. Export and Import of Natural Gas In 2003, the international market traded 736 BCM of gas (Fig. 4), which is 2.5 times more than in 1990. Over 13 years, the rate of international gas trade was growing at 11.3% per annum.

Figure 4 Export and Import Distribution.

At the early stage of the gas industry, three gas markets were shaped in the world: those of North America, Europe, and the Asia-Pacific Region. Over the years, the orbits of the markets were involving more and more gas exporting and importing countries. To date, there are about 30 exporters and about 60 importers of natural gas at the world market. Gas is traded either over pipelines or as liquefied natural gas (LNG). Trading over pipelines is typical mainly for intra-regional trade, although there are also some inter-regional pipelines (e.g., AlgeriaEurope), and that kind of trade prevails at the North-American and European markets. LNG is traded at the inter-regional level, predominantly at the European and AsiaPacific markets. In 2003, 23% (169 BCM) of the overall amount of gas at the international market was LNG. In 19902003, LNG deliveries grew almost 2.4 times, the rate of growth being 10.4% per annum.

MEETING NATURAL GAS DEMAND: GLOBAL AND REGIONAL CHALLENGES Block 3, Forum 13 paper Trade in LNG has been developing more than intensely. To date, the share of LNG in the world gas trade is 27.4%; by 2020, it will have grown to 3137%. By 2030, according to Royal Dutch/Shell, world demand for LNG will have increased five times, while it will only have doubled for pipeline gas. The Asian countries import approximately 70% of the overall amount of LNG in the world trade channels, in that number Japan imports almost 50%. Roughly 27% of LNG is sent to Western Europe (over 20% to Spain, France, and Belgium), and the rest to the USA. To date, LNG is traded through 41 terminals for acceptance and regasification of LNG, the overall terminal throughput being approximately 370 BCM per annum. The industrially developed countries are net gas importers. In 2003, they imported 491 BCM and exported 270 BCM. These countries export gas at the intra-regional level: at the NorthAmerican market, Canada supplies gas to the USA; at the European market, it is Norway, the Netherlands, and the UK that export gas to other European countries. Gas is imported from both intra-regional and inter-regional sources: the USA, apart from Canadian gas, receive LNG from Latin America, Africa, and Asia, while the European countries purchase both pipeline gas (from the CIS and Algeria) and LNG (from Africa, the Middle East and, in small amounts, from Latin America and Australia). The Far-East importers of gas (Japan, South Korea, and Taiwan) receive only liquefied gas from countries of the Middle East, South-East Asia, Australia, and the USA. The developing countries are net gas exporters: in 2003, their export reached 218 BCM (including 157 BCM of LNG), and their import reached 88 BCM. The countries of planned or transition economy are also net gas exporters: in 2003, they exported 248 BCM (from the CIS) and imported 158 BCM (into countries of the CIS and Eastern Europe). As to geographical regions, Africa, the Middle East, South and South-East Asia, Australia and the CIS are net gas exporters, while Europe, Central Asia and the Far East are net gas importers. To date, both Americas, owing to their reciprocal deliveries, are a closed market at the level of self-reliance. Forecast for International Natural Gas Trade International natural gas trade is forecast to become more dependent on gas import, primarily from the OECD countries. Thus, import dependence of the North-American countries will increase from 1% consumption in 2000 to 26% in 2020, while in Western Europe the same parameter will grow from 40 to 70%. By 2030, China will have covered up to 30% of its consumption with import. On the long-term basis, Russia and the Middle East countries (primarily Iran and Qatar) would stay being the major gas suppliers. Experts believe that export deliveries from the transition economy countries, first of all from Russia, will rise by a factor of 2.5 in 30 years time, while export from the Middle East will grow 16 times. In accordance with the Energy Strategy of Russia for the period until 2020, by 2020 Russian gas export will have grown to 275280 BCM as compared with 180 BCM in 2002, or slightly less than by 50%. World demand for gas will grow within the same period approximately by 70%. Import demand of North America will rise from 5 to 345 BCM, or almost 70 times, that of the OECD countries in Europe from 186 to 625 BCM, or almost 3.5 times, that of the OECD countries in the APR from 83 to 121 BCM, and that of China to 47 BCM.

European Gas Market According to the International Energy Agency (IEA, 2000), demand for gas in the European OECD countries will grow from 409 BCM in 1997 to 621 BCM in 2010 and to 773 BCM in 2020. In 19972020, the growth of gas demand will be 2.8%, which implies an increase of the gas share in primary energy resources from 20% in 1997 to 30% in 2020. Gas production in European countries (EU-15) will drop from 224 BCM in 2000 to 196 BCM in 2020. Import dependence will grow from 40% in 2000 to 6770% in 2020 (Fig. 5).

MEETING NATURAL GAS DEMAND: GLOBAL AND REGIONAL CHALLENGES Block 3, Forum 13 paper

Figure 5 EU dependence from third countries.

The Observatories Mediterranean De LEnergie cites some data following a review of export potentials in different countries. In accordance with these data, Russia, Norway, and Algeria will retain their lead positions in gas export to Europe. Thus, Russia will increase its gas deliveries to EU-15 from 73 BCM in 2000 to 113 BCM in 2010, and this volume will be the same until 2020. Export of Norwegian gas will grow from 50 BCM in 2000 to 90 BCM in 2010 and to 110 BCM in 2020. Gas deliveries from Algeria will rise from 55 BCM in 2000 to 82 BCM in 2010 and to 105 BCM in 2020. Russian gas export to the EU-30 countries will build up significantly. In 2000, it was 130 BCM, and now it will rise to 200 BCM in 2010 and 2020. Norwegian gas export is oriented towards Western Europe, and that is why its gas deliveries in 2000 had the same parameters, while the export will rise to 100 BCM in 2010 and to 120 BCM in 2020 due to Norwegian gas deliveries to Central and Eastern European countries. Deliveries of Algerian gas to EU-30 were as follows: 60 BCM in 2000, 90 BCM in 2010 and 115 BCM in 2020. The growth of demand will be as follows: for EU-15 167 BCM in 2010 and 297 BCM in 2020, and for EU-30 323 BCM in 2010 and 386 BCM in 2020. In 2020, overall EU-15 demand will be 535 BCM, in that number 328 BCM of gas, or 61%, will be supplied from Russia, Norway, and Algeria. The African natural gas exporters are comparatively new ones; however, they occupy steady positions as ranking second after Algeria at the European market. Export deliveries from Nigeria to Europe will have risen to 15 BCM by 2010 and to 20 BCM by 2020. Egypt and Lebanon increase their export to Europe at a fast rate. These countries can deliver to the European market as much as 1012 BCM each in 2010. In 2020, they can deliver 25 BCM and 35 BCM, respectively. By 2010, the Persian Gulf countries will have commenced intensely employing their gas export potential. Gas deliveries from the region may reach over 20 BCM. In practical terms, the entire volume will be provided by Qatar and Iran. By 2020, export from these countries may double and reach 40 BCM. The current gas suppliers to Europe will be joined by Iraq, Yemen, the United Arab Emirates, and, most likely, by Oman and Saudi Arabia. In 2020, their deliveries to Europe may reach 2530 BCM.

MEETING NATURAL GAS DEMAND: GLOBAL AND REGIONAL CHALLENGES Block 3, Forum 13 paper Gas supply to the European market may be increased considerably due to deliveries from Central Asia. Turkmenistan supplies gas to Russia and the Ukraine, and it wants to enter the European market as well. This may be realized as gas deliveries from the shelf fields of Azerbaijan and Kazakhstan, taking into account construction of a gas pipeline routed via Turkey and the Balkans to South Europe. The overall gas supply from these countries may grow to over 60 BCM. Role of LNG in the World Gas Market Development During the recent years, the world LNG industry has made significant strides in its progress, unparalleled by any other economic sector. Indeed, that has been a period of recordbreaking growth of liquefying capacities, because the rate reached 12.5% per annum starting from the initial LNG output back in 1964. By 2005, the LNG production capacities rose to 150.0 MT per year. In 2004, there were 17 plants producing LNG all over the world; with their 71 production lines, these plants are distributed over 12 countries. To date, there are LNG plants in every continent, except Europe. The South-East Asian countries rank first; they are followed by Africa and the Middle East. As to distribution of capacities over the continents, they run as follows: Asia (42%), then Africa (24%), the Middle East (20%), South America (8%), Australia (7%), and North America (1%) (Fig. 6).

Figure 6 Global LNG flows.

In 2004, the major LNG production capacities were distributed among the 12 countries. Indonesia possesses the greatest gas liquefying capacities that reach 33.1 MT per annum. It is followed by Algeria and Malaysia. By 2010, the world LNG production capacities will have reached approximately 380 MT per annum, which is more than 2.5 times greater than the 2005 level. In 2010, the number of LNG production lines is forecast to reach 112, and they will be installed in 38 LNG plants. Qatar will have 16% of the world LNG capacities, and therefore it will lead the shaping market. The countries already producing LNG will be joined by new ones: Angola, Venezuela, Iran, Yemen, Norway, and Russia. The Middle East will possess 30% of the world LNG capacities; it will become the largest LNG producing region and overtake Asia with its 25%. It is expected that the rates of LNG consumption should be the fastest in three countries: China, India, and the USA.

MEETING NATURAL GAS DEMAND: GLOBAL AND REGIONAL CHALLENGES Block 3, Forum 13 paper The OPEC countries play an ever more significant role in the LNG industry. The six-country cartel operating in the business is involved in over 60% of international liquefied gas deliveries. In those countries, with due regard to Iran and Venezuela, there are over ten new projects under way at different stages of their implementation. Conclusion During the recent decades, the world gas industry has been developing on a stable and efficient basis. Fast growth of natural gas demand and consumption is supported by a steady rise in its production, whereas the immense probable resources of natural gas make it possible to assume that the role of gas in the advance of the world energy complex is more than considerable. The gas resources are distributed unequally over the planet, and gas consumption centers are remote from gas fields. These factors underlie the progress of local, regional, and global gas markets. Non-uniform distribution of natural gas resources brings about the development of transregional and trans-continental networks of long-distance pipelines and a powerful rise of the LNG industry. As it follows from the forecasts, the volumes of international gas trade will double in the first decade of the 21st century and will have tripled by 2030. Apart from traditional gas markets, new markets develop intensely. At the same time, fast progress of the LNG industry is accompanied by internationalization of gas trading channels, which promotes global natural gas market growth at a still faster rate.