Natural Gas: Now and Later – 12/12/16

Natural Gas – The Near Future

OPEC’s promised cuts to its oil production threaten to sink natural gas prices and swell the existing glut.

Every barrel of oil extracted comes with natural gas as a byproduct so a revival in U.S. shale drilling could mean a veritable flood of gas. Any increased oil production in the U.S. could limit further gains in gas prices, as it would likely increase oil-associated gas production, which accounts for about 20% of domestic supply.

Prices being laid low yet again would devastate some gas bulls, but it also stands to boost the liquefied natural gas (LNG) market as LNG exporters could operate at an even deeper discount.

Natural Gas – The Far Future

Natural gas is projected to account for the largest increase in world primary energy consumption from 2012 to 2040 in the International Energy Outlook 2016 (IEO2016) Reference case by the EIA.

World LNG trade is expected to more than double from 2012 levels by 2040. Most of the increase in liquefaction capacity occurs in Australia and North America.

The United States is expected to increase its gas production by 11.3 Tcf from mainly from shale resources (global consumption was 120 trillion cubic feet (Tcf) in 2012; estimated  203 Tcf in 2040). Total gas production in China, the United States, and Russia accounts for nearly 44% of the overall increase in world production.

Horizontal drilling and hydraulic fracturing technologies have contributed to a near doubling of estimates for total U.S. technically recoverable natural gas since 2006. Shale gas accounts for more than half of U.S. natural gas production by 2040 in the IEO2016 Reference case.

Natural gas production in the OECD Americas is projected to grow by 49% from 2012 to 2040 with the United States accounting for more than 66% of total production growth. By 2040, shale gas and tight gas combine to account for 75% of total U.S. production in the Reference case.

On the consumption side, the power sector is favoring natural gas for new power plants because of its high fuel efficiency and clean burn relative to coal. The industrial and electric power sectors together account for 73% of the increase and about 74% of total gas consumption through 2040.

The strongest growth in gas consumption is projected for non-OECD Asia, like China and India, where economic growth leads to increased demand. Non-OECD countries’ share of total gas use grows from 52% in 2012 to 62% in 2040 in the reference case.

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