Natural gas is considered the queen of the fossil fuels mainly because it is the cleanest of them all and the world is in transit to a low-carbon economy. This has led to an abnormally high increase in gas production as energy demand worldwide shifts towards this resource for power generation and NGVs. Gas demand in the non OECD countries is now larger and growing faster than in the OECD countries. There is a general perception that there are bountiful supplies of natural gas. On a global scale, however, this valuable resource stands for less than one-fifth of the combined oil and gas resources discovered so far, making it more compelling that we have to conserve it as much as possible. Natural gas is the niche supplier to industry, petrochemical feedstock, agriculture, and residential and commercial uses, sectors which account for two-thirds of the natural gas consumed.
Natural gas is the world’s fastest growing fossil energy source contributing almost 50 million barrels a day of equivalent oil. Supply and demand has increased a sizzling 30% in the last 10 years, from just over 220 bcfd to 287 bcfd today and, according to the latest demand models, is expected to further increase 50%, to reach 337 bcfd by 2015 and 425 bcfd by 2030. The Big Three producers: Russia (63 bcfd), US (51 bcfd) and Western Europe (28 bcfd) account for half of the world’s natural gas output. The issue is, can natural gas reserves meet this growing demand? Reserves are the foundation of production capacity. It is important to bear in mind that produced oil provides roughly 16% of the world’s output of natural gas (through associated gas) while natural gas provides (through NGLs) 12% of the total petroleum liquids supply pool of 84 million b/d. So there is a strong interdependence between the outputs of crude oil and natural gas. They nurture each other significantly even though they have different market drivers. In other words, we need to look at future oil & gas supply from a coupled or integrated point of view. This is the uniqueness of our report.
Although nature might have bestowed us with comparable amounts of reserves of conventional natural gas and crude oil – roughly 2.4 trillion barrels of oil equivalent each – we have already seen the effects of stretching the limits of oil supply – oil prices at $147. The following Table epitomizes the tight spots of future natural gas supply.
|North America||73||76||73 ↓|
|Middle East||31||46||96 *****|
|Western Europe||29||27||21 ↓|
|Latin America||13||17||27 *|
Source: IEA08. * Indicates rank of volume increase, 2007-2030.
Production from North America and Western Europe, the two largest consumers, will be dropping off by 2030 and the key to meet a world demand of 425 bcfd lies in the Middle East. They would have to triple their current production capacity. This is a 5-star increase that would come primarily from Qatar and Iran. Eurasia, mainly Russia and Turkmenistan, would have to increase its capacity by 30%. The Middle East and Eurasia would jointly account for half of the world’s gas production by 2030 and would have to provide more than 60% of the expected increase in demand of 141 bcfd. Together they hold responsibility for 50% of the increases required as early as 2015. Contrary to the case of oil wherein reserves are dwindling, all of the above regions have sufficient gas reserves to cope with the future production capacities called for but it would require massive investments for their development. And development depends on the policies of a few volatile countries. The world’s largest gas field – North Field-South Pars, shared by Qatar and Iran – produces less than 10% of its potential of 110 bcfd. Likewise, Turkmenistan’s Iolotan, the second largest gas field in the world with a potential of 30 bcfd, is completely undeveloped. It is almost safe to say that in the not too distant future we can experience supply/demand imbalances with natural gas, and prices will inevitably move towards more symmetry with those of oil thereby taking away the customary price attractiveness of natural gas. At the end of the day the cost of electricity could easily double on short notice.
For more of Dr Rafael Sandrea’s work on global oil and gas resources see: An In-Depth View of Future World Oil & Gas Supply - A Quantitative Model which is available online through PennEnergy.com.
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