Global Gas Outlook

to 2030
Executive Summary

Global Gas Outlook to 2030 Executive Summary

The global gas market is in a state of flux. With price divergence narrowing, the cost of oil remaining low and new
economic uncertainty in Asia, predicting the market with confidence is a challenge
Energy Insights is uniquely positioned to bring greater clarity to energy sector dynamics by combining the experience and
insights of its specialist team, with a proprietary analytics-based approach to market analysis.
In this exclusive Executive Summary we outline the regional and economic factors driving the gas industry and provide an
overview of anticipated market dynamics until 2030.
For more detailed analysis of global risks and opportunities, a drill-down to the long-term prospects for LNG and insights
into the market by region and sector, you can purchase the full Global Gas Outlook 2030 report from Energy Insights at
mckinseyenergyinsights.com

1. The past, present and short-term future a new pricing paradigm

Over the last decade the global gas market has had strong growth driven in part by a surge in LNG supply, which has
linked regional markets and opened new supply routes.
Yet despite this interlinking, the same regional markets have continued to operate independently and have remained
strong enough to ensure prices continue to be diverged.

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The gas world is increasingly interlinked

2013
2000
Norwa
y
49
12

Trinidad
South
America

2000
8 main export routes
2 main markets: Europe and North Asia (Japan, Korea, Taiwan)
Each supplier serves only one main market

13

Russia
162
162
Caspian
Europe
27
11
China
34 22
Middl
30 14 24
e
16
N. Africa
East
India
73
11
22
W. Africa
14

N.
Asia
68
58
S.E.
Asia
Australia

14

25
10

2013
15 main export routes
3 new import markets: India, China and Latin America
The Middle East and Russia each serve multiple markets

Three distinct discontinuities have been responsible for this divergence between 2012 and 2014

In the US, export restrictions, alongside improvement in technology and a lack of producer discipline, led to supply

exceeding domestic demand. A surge in shale production replaced the need for LNG imports, driving prices down from
$8-9/mmbtu in 2009 to under $4/mmbtu in 2014

In Asia, strong gas demand, driven in the main by Chinas economic growth and Japans nuclear phase-out, kept gas
prices close to oil parity as a next best alternative.

In Europe, gas demand stagnated as a result of the economic slowdown and depressed gas-to-power generation. Despite
this, dependence on increasingly costly North Sea fields and long distance pipe imports kept prices relatively high at $1012/mmbtu

In 2015, the situation has changed

Were now experiencing partial convergence, with regional price differences starting to slide.
Demand growth has slowed in key countries particularly China for whom an economic slowdown and lagging industrial
production have affected the appetite for gas.

SOURCE: BP Statistical Review of World Energy, 2001; BP Statistical Review of World Energy, 2014; Energy Insights, Global Gas Model

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Meanwhile the rapid decline in global oil prices has put further downward pressure on prices, with the cost per barrel
plunging by around 50% between mid-2014 and mid-2015 . With Asia traditionally pegging gas prices to oil and Europe
operating along similar lines (alongside some hub-based indexation), gas dropped to around $7/mmbtu in both regions,
closing the gap on the USs already low prices.

Short term, further convergence looks likely

Despite the short term effect of the temporary nuclear shut down in Japan and South Korea looking set to have subsided
by the end of 2015, alongside a dampening of LNG demand in China as a result of a slower economy and a reticence to
switch fuels as a result of lower oil prices, LNG demand growth is expected to remain strong short term at around 5% per
year.
Supply however will surge to 2020, with LNG volumes looking set to show their fastest ever increase as a result of new
liquefaction facilities coming online in the US and Australia. The new facilities will see a shift in the global supply map, with
Australia set to match Qatar as the worlds leading LNG exporter by 2019 in terms of capacity, and the US following closely
behind as the third largest in 2020.
This rapid growth in supply together with relatively slower underlying growth suggests continued loosening of the market
short term. As trade becomes more liquid and barriers are removed, the result could be a new pricing paradigm for gas,
which has remained steadfastly regionalised over recent years.

2. Long-term: a return to greater uncertainty

Longer term, the outlook is more uncertain, with a number of critical drivers set to determine market direction to 2030.
Demand will be governed in large part by Asias increasing appetite for gas. China, India, Pakistan and ASEAN countries
look set to account for more than 90% of total new volume demand over the next 15 years. With a decline in the capacity
of older LNG terminals, around 240 bcm of new supply capacity will be required by 2030 above and beyond that already
satisfied by approved Final Investment Decisions (FIDs).
FIDs will be fundamental to securing long-term supply projects already under construction look likely to fulfill, and
exceed, demand over the next few years, but the market looks set to tighten again by 2022 if further FIDs go unapproved.
Much of their likelihood to progress hinges on the price of oil and the ability to deflate expenditure for large capital
projects.

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Lower oil prices have led to a slower than expected switch to LNG. If they remain low, they will have a significant impact
on supply and demand dynamics. Not only will they reduce the cash flows of oil and gas companies, limiting their ability to
reinvest, but the viability of future FIDs will be at risk at a sustained level of $75/bbl, only 10% of proposed projects
would remain profitable, with 60% turning no profit at all. At the even lower current oil price of $40-50/bbl it is very
unlikely that new FIDs are taken at all without major cost deflation achievements.
As a consequence, the global gas market is set to tighten once more, and we could see a return to divergence in regional
prices.

If limited new FID decisions are made in the next 2-3 years, the market is likely to tighten again by 2022
Global LNG supply and demand balance if projects take
FID in the next three years
Potential Supply from non-FID projects1
New supply from post-FID projects

Base Case
LNG Demand

Supply from existing facilities

however, as project FIDs are likely to be delayed, a

further tightening of the market is expected after 2022
Loosening market in 2017-2019 together with sustained
low oil prices will make FID delays likely creating a tight
market cycle by 2022

700

700

600

600

500

500

400

400

300

300

200

200

100

100

14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

ILLUSTRATIVE

Loosening
market

Tightening
market

14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

1 The potential supply from non-FID projects is purely meant to be illustrative; 2 Final Investment Decision

Source: Energy Insights

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3. Supply and demand dynamics by region

3.1 Global overview

Global natural gas demand is likely to grow by 1.9% p.a. to approximately 4,700bcm by 2030.
While much of the growth will be driven by Asia, and especially China; Africa, North America and the Middle East will

provide other pockets of growth - a total of 980bcm between them. Conversely, Europe and Russia will remain relatively
stagnant, adding only 40bcm in total over the same 15 year period

Sector-wise, transportation will see the highest growth across all key regions, followed by industry, then the residential
and commercial sectors

To meet demand, the gas industry will need to expand supply from regions with conventional gas and access additional
unconventional supplies

Shale looks set to deliver 60% growth between 2015 and 2030 (around 750 bcm volume increase, in comparison with

500 bcm for conventional supplies). With the surge in supply from US shale producers, the world is likely to look west to
fulfil much of this demand

With LNG exports opening from 2016, the global trade map will be redrawn, with a series of new pipeline and export
routes sustaining extensive volumes, particularly around China and North Asia

3.2 North America

In North America, oversupply is expected to continue in the short term, due to limited domestic gas demand growth and
a competitive low cost supply market keeping prices low. Longer term, demand growth looks set to be solid; from 0.8%
to 2.7% p.a. by 2030

Regionally, Canada will see the slowest demand growth, stagnating at 0.8% p.a. as a result of energy efficiency gains in
residential and commercial buildings. Mexico however will experience a strong increase in demand, driven by energy
reforms and a revitalisation of the industrial sector

From a supply perspective, an increase in shale production by almost 300% over the twenty year period between 2010
and 2030 will see conventional resource eclipsed by unconventionals. By the end of this time frame, conventional will
represent less than 10% of total supply though conventional production will remain important regionally

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On a country level, the US is the main driver of increased supplies: adding approximately 275 bcm between 2015 and 2030
Gas supply by country in bcm
CAGR
2015-30
1.5%

Mexico

Mexican gas production is likely to grow only

to limited extent, as investments in oil are
preferred to gas due to higher revenue
potential), with long-term growth possible as
energy reforms open gas production areas to
private investment

2.3%

Canada

Canadian production will be stimulated by

LNG exports towards the end of the forecast,
as the oversupply in the US gas market as a
result of the strong growth in shale
production has hampered short-term export
opportunities

2.2%

US

The US will meet growing demand with large

shale gas expansion, most new development
will come from the Marcellus and Utica shales
with a potential emerging play to appear
following price strengthening

2.1% p.a.

814
51
138

626

2010

935
47
166

722

2015

1,086
51
167

868

2020

1,229
54
196

1,285
58
232

979

995

2025

2030

3.3 Europe

Short term, increased LNG imports as a result of global oversupply will create downward price pressure. As the LNG
market searches for additional demand to balance the market, flows originally diverted from Europe to Asia in search
of higher prices will remain in Europe, further adding to an already over-contracted market
And domestic demand will be hard to find. Though transport use will increase by around 11.6% to 2030 thanks to a
shift towards gas-fired vehicles and ships, this will be offset by stagnation in other markets

Source: Energy Insights, North American Supply Model

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With GDP and population growth expected to level off, and energy efficiency creating lower domestic demand, gas
demand in the residential sector will decline, while competition from continued low coal pricing will continue to keep
gas-fired power plants out of the market. Meanwhile, a lack of infrastructure, and decision-making constraints will
counteract favorable regulatory conditions in the industrial sector
From a supply perspective, conventional production is expected to decline at 0.9% p.a. as a result of lower
conventional production in the United Kingdom and the Netherlands. However Norway looks set to pick up some of
this trade following new discoveries in the Norwegian and Barents seas. 30% of production by 2030 is expected to
come from Norwegian fields currently under development or in discovery
European shale production is an unknown quantity at present as estimates vary and the industry lacks political support,
but it is likely to fulfil around 2-3% of total demand by 2030, mainly from Poland and the UK
Whether the region switches its attention to conventional or unconventional sources, after 2020 it will need to seek
additional supplies to replace declining domestic production. Imports are likely to come from piped channels with some
LNG imports

3.4 Asia

China will come under increasing pressure to develop domestic reserves as demand will continue to outpace supply,
making it import dependent.
Having already signed agreements with Russia to provide pipelined supply from its Eastern provinces, forward planning
is proving critical to ensuring long-term sustainability of resources - however, we are yet to see the impact of the
countrys economic slowdown, and how this will affect its framework partners
The slowdown is already impacting on net import demand and fuel switching despite pressure to replace traditional
dirty fuels (coal, heavy oil) with cleaner natural gas. In 2014 demand increased by just 5.6% - below the pace of GDP.
Despite the discrepancy between demand and domestic supply, production in China will grow, by around 4.1% p.a. to
314 bcm by 2030. Coal to gas looked set to provide much of this new supply,
with +50 planned projects underway by mid-2014, however the enthusiasm of investors has waned as a result of
challenging operational and economic conditions
Shale too, looked like a promising option for some time, but high production costs and a government announcement to
cut back on shale subsidies look set to confine growth to around 16.6%.

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The impact of the economic slowdown aside, with current contracted LNG imports only able to meet demand until
2020, cross-border pipelines look likely to be critical in serving Chinas growing need long term

The ASEAN countries will also become increasingly dependent on imports between 2015 and 2030, with demand expected
to grow to 239 bcm p.a. in direct contrast with a decline in domestic supply to 184 bcm by 2030.

Strong growth in all countries will drive demand, with Brunei and Vietnam leading the charge at 3.3% and 3.2%
respectively.
Only Malaysia, Myanmar and Brunei are expected to remain net exporters, while Thailand and Indonesia will be most
in need of new LNG import volumes

Some of the ASEAN countries may source volume domestically, others will need LNG from global trade
International trade flows

Myanmar

Domestic LNG movement

Lao PDR

Pipelines
Domestic LNG Flows
International LNG
Flows
Brunei LNG
export to
Malaysia
Korea/Japan
LNG export
to Korea/
Japan

LNG regasification terminal

Existing
Under construction
Planned

Domestic
allocation from
Bontang/
Tangguh LNG

Malaysia
Singapore

cargo from Kalimantan/Papua to Java/Sumatra

Kalimantan : Supply sources are IDD, Jangrik, Offshore

Mahakam,

Indonesia:
LNG export to
Japan/Korea/
Taiwan

Malaysia
Excess cargo from Sabah/ Sarawak could be diverted to

Peninsular Malaysia

Philippines

Brunei
MLNG1

East
Timor

Source: Energy Insights; Press

Domestic market obligation will result in diversion of LNG

Papua: supply source is Tanguhh

Thailand

Vietnam
Cambodia

Indonesia

Domestic LNG Papua

allocation from
Bontang/
Tangguh

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 Unlike in other regions, transportation looks set to be the lowest driver of demand, while other sources (e.g. gasoline)
remain more economical. However, the sector will remain on an upwards trend at 1.8% growth, while the biggest
drivers will be power and industry; both as a result of continued economic growth.

In India, demand is expected to increase by 5.9% p.a. to 127 bcm in 2030. Like China and many ASEAN countries, India
will need to source imports as a result of strong demand growth, and limited domestic supply opportunities.

Though energy reforms are expected across the country over coming months, fuelling increased renewal in both on- and
offshore investment, supply looks set to deliver only 69 bcm over the long term.

With piped imports unlikely to materialise due to security concerns and complicated cross-regional political
relationships, India will need to rely exclusively on LNG to satisfy demand.

Japan and South Korea have seen a short-term switch to gas post-Fukushima, but nuclear facilities are due to come back
online after 2020.

The resulting decrease in gas-to-power generation looks set to offset relatively strong growth in Japans industrial sector,
leading to stagnant demand in the country.

In Korea however, demand is expected to show modest growth at 1.2% p.a. as a result of government policy stimulating
a switch from coal, and continued support for both gas and nuclear

4. Summary tracking the known unknowns

Predicting a changing market with any degree of accuracy is difficult. But by identifying the main uncertainties and
associated short term indicators likely to drive future development, it is possible to develop signposts to enable more
robust decision making.
In the case of the global gas market, the four key uncertainties that look set to alter long-term perspectives are as follows

The volume and pace of Asian LNG demand. Theres no doubt that Asia will continue to be the main driver for global
gas demand until 2030 what is in doubt is the level of net import growth. Total demand in Asia is highly dependent on
economic growth; which continues to look shaky, particularly in China.
Realisation of proposed LNG export projects. Any proposed LNG project that has not already taken FID will struggle to
do so in the coming years given the continued downward pressure on pricing as a result of low oil prices.

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Development of export potential in the Middle East. The Middle East could prove to be the wildcard of the LNG
market. Thought it currently holds 43% of total global gas reserves, political embargoes have meant that it has only
accounted for around 16% of total trade flows. The warming of relations between Iran and the West could be a
potential game changer if the country enters the gas market at full force.
The influence of oil on gas pricing. If prices remain linked to oil, particularly in Asia, we could see a tightening - and
subsequent rebalancing of the global gas market, alongside potential erosion of demand in Asia

For a detailed regional gas market fact base, alongside extensive in-depth analysis of the prospects for LNG, purchase
the full Global Gas Outlook to 2030 from Energy Insights at mckinseyenergyinsights.com

Do you need assistance with your next oil or gas project?

Energy Insights specialises in deep-diving the issues, risks and challenges specific to our clients businesses. If you require
more detailed bespoke analysis to aid your research and make more confident investment decisions, get in touch with
the team at gasoutlook2030.com/bespoke

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