Natural gas forms an important part of the global energy mix. In the coming years, the natural gas market is expected to be the fastest growing for fossil fuels globally.
Natural Gas – a global perspective
Natural gas forms an important part of the global energy mix. In the coming years, the natural gas market is expected to be the fastest growing for fossil fuels globally. The global market for natural gas will expand even further as liquefied natural gas (LNG) allows integration of regional markets, leading to greater congruence in global price movements. Energy supply will also be boosted by unconventional gas, such as shale gas (see our shale gas briefing sheet).
The global natural gas consumption was 3.35 trillion cubic meters* in 2013, approximately a 1% increase compared to 2012  – this was a relatively modest growth compared to the previous decade. Gas demand continues to shift from mature OECD countries to non-OECD regions where there has been rising gas consumption within the industrial and power sectors. A critical factor influencing the level of growth in consumption across all regions has been the development of domestic production capabilities. Economic factors have also affected consumption by enhancing the ability of importing countries to afford more expensive gas on the global gas market.
*Cubic meter is used as the unit of volume throughout this Briefing Sheet and is expressed under standard conditions of temperature and pressure.
The global natural gas supply grew by approximately 1% in 2013, compared to the 2012 production level, in line with the growth in demand . The largest growth in production in 2013 came from the former Soviet Union region at 1.9%, while supply from the European Union dropped by 0.5% over the previous year .
To provide an indication of the remaining lifespan (years) of gas as a natural resource, the reserves-to-production ratio is illustrated in Figure 1.
UK Natural Gas
Production and Consumption
Since 2000, the UK Continental Shelf (UKCS) production of natural gas has been declining at an average rate of 8% per annum; however, the rate of decline has not been consistent over the past decade . Regardless, the UK remains one of the two major gas-producing countries within the EU, along with the Netherlands.
In 2013, the UK’s gross gas production was 38.5 billion cubic meters* , which was sufficient to serve approximately half of domestic consumption. The UK has been a net importer of natural gas since 2004. LNG imports peaked in 2011 at 25 billion cubic meters  following the opening of two new LNG Terminals in 2009 (Milton Haven – South Hook and Dragon). However, there has been a decline in LNG import and an increase in import via pipelines into the UK – from Belgium and Norway – since 2011. The increase in import via pipelines is a result of the rising price of LNG, which has been driven by the growing Asian demand.
For a detailed analysis of gas consumption in the domestic sector, see the National Energy Efficiency Data-Framework (NEED) published by the Department of Energy and Climate Change .
*This includes waste and producers' own use, but excludes gas flared. Conversion from TWh – 1 bcm is equivalent to 11 TWh
Currently, the total existing UK storage capacity (including LNG storage) is 4.6 billion m3 and there are a number of proposed storage sites, which can increase the storage capacity by up to 7.5 billion m3. The National Grid’s Gas Transportation Ten Year Statement  provides information on the potential future development of the National Transmission System and the proposed storage projects.
The Transmission System, owned and operated by National Grid, forms a key part of UK gas infrastructure. Gas trade takes place via interconnector pipelines (from Norway, the Netherlands and Belgium), interconnectors to Northern Ireland and Ireland, and shipping to the UK’s LNG terminals. Gas exports and imports were, respectively, 24% and 2.5% lower in 2013 compared to the 2012 figures . As a percentage of UK total gas consumption in 2013, pipeline imports and LNG imports accounted for approximately 57% and 13%, respectively .
Natural Gas Outlook
Figure 4 illustrates the projected growth in demand for natural gas consumption  – non-OECD countries are expected to lead the growth at a rate of 2.5% per annum. Despite a relatively small share of total natural gas consumption today, transport is forecast to be the fastest growing sector in terms of natural gas consumption. This is expected to be largely a result of a transition towards natural gas as a transportation fuel. Note that in non-OECD regions, transportation is expected to be the primary source of demand growth as a result of increased vehicle ownership.
Increasing use of natural gas in the power and industrial sectors will account for over 80% of overall global demand growth. As global gas demand rises, non-OECD countries will be the largest contributors to incremental demand. This growth will continue to 2035. By contrast, European gas consumption is estimated to fall leading up to 2018 – this is partly due to increased renewable generation in the power generation sector .
Availability and Supply
Increased gas availability, due to a global expansion of gas supply resulting from unconventional resources, has a moderating impact on the price of gas. Hence, global gas demand is expected to increase by over 50% (compared to the 2010 demand) by 2035 .
OECD Americas, OECD Asia Oceania and Russia are expected to remain the three main contributors to gas supply. Prices for drilling of dry gas (primarily methane) and wet gas (methane mixed with other gas compounds – “natural gas liquids”) govern OECD Americas’ production, while Asia Oceania’s production is driven by rising Australian production under long-term contracts . Russian production is dependent on European, and to some extent Chinese, demand growth.
Non-OECD countries will also provide the largest conventional gas supply increment, while the OECD share of gas production is expected to grow rapidly accounting for approximately 30% of the increase in global gas supply by 2035 .
Recent major discoveries in East Africa and the East Mediterranean have led to an increased investor focus in these regions. However, production from these fields could be deferred beyond 2020 due to a range of factors, including geopolitical influences, balancing exports with domestic demand, potential fiscal policy changes and development cost associated with new infrastructure .
The market for global gas trade has been expanding as a result of the flexibility offered by LNG. As a result, LNG is set to become the dominant form of traded gas by 2035.
The shift in import demand for natural gas away from North America and Europe and towards Asia will lead to a decline in traded gas supplied via pipelines. By 2035, the growth in inter-regional gas trade will account for around 30% of the increase in overall gas consumption and LNG is set to become the dominant form of traded gas .
The growth in shale gas production is expected to lead to North America gradually becoming a net exporter. Barriers which may impact this trend are government-imposed export policies, commercial and technical viability, and challenges in expanding the export infrastructure.
Net imports by Asia Pacific will almost triple, which will account for approximately half of global gas net imports by 2035 .
Issues impacting gas supply security can be divided into three main categories :
- Upstream – security of supply – this includes availability of proven reserves, access and development issues, impact of existing technologies and pricing
- Midstream – security of transport – this includes processing facilities, pipelines and interconnector infrastructure, compressor stations, storage capacity, LNG shipping
- Downstream – security of demand – this includes the level of gas use within the overall energy mix, price formation and competitiveness, carbon capture and storage (CCS), contractual frameworks, energy policy and carbon regulations
Emissions and Climate Change Policy
The Intergovernmental Panel on Climate Change (IPCC) published its Fifth Assessment Report (AR5) in 2014. The report provides a comprehensive assessment of climate change mitigation options through limiting and/or preventing greenhouse gas (GHG) emissions, and also highlights the associated spectrum of uncertainties .
The IPCC forecast is that the global decarbonisation rate will continue its positive trend as natural gas and non-fossil fuels sources of energy gain an increasing share in the total primary energy use .
There is general agreement that the average global temperature rise caused by GHG emissions should not be allowed to exceed 2°C above the average global temperature of pre-industrial times, to prevent the most harmful effects of climate change . In 2012, natural gas accounted for 14.4% of the world CO2 emissions . Meeting the emission goals pledged by countries under the United Nations Framework Convention on Climate Change (UNFCCC) would still leave the world 13.7 billion tonnes of CO2 above the level required to avoid exceeding a 2°C warming by 2035 .
The IPCC suggest that although environmental mitigation policy could have a devaluating effect on fossil fuels in general, it is possible for mitigation policy to benefit natural gas export revenues until about 2050 . CCS availability will influence how mitigation impacts fossil fuel assets.
GHG emissions from energy supply can be reduced through increased use of efficient natural gas combined-cycle power plants, given there is sufficient natural gas availability as well as suitable management of fugitive emissions.
The 2008 Climate Change Act in the UK established the world’s first legally binding climate change target, aiming to reduce the net UK greenhouse gas emissions by at least 80% (from the 1990 baseline) by 2050 . In 2013, UK emissions of the basket of seven GHGs covered by the Kyoto Protocol were estimates to be 568.3 million tonnes of carbon dioxide equivalent (MtCO2e) – a 2.4% reduction from the 2012 level . In the UK, natural gas is one of the main sources of GHG emissions in the energy supply sector (electricity generation), the residential sector (heating and cooking) and the public sector (heating) .
Unconventional Gas and Other Alternatives
Discussions on unconventional gas developments mainly focus on two overarching issues: (i) the overall impact of hydraulic fracturing on water, soil, and air quality, and (ii) the GHG effects of unconventional gas production resulting from potential methane leakage.
Unconventional gas production is expected to take-off by 2020, however in the medium-term, major gas production developments outside North America are likely to focus on coalbed methane (CBM) and tight gas, as opposed to shale gas production . CBM is a form of natural gas extracted from coal beds and tight gas refers to natural gas produced from low permeability reservoir rocks, which require hydraulic fracturing to produce at economically viable rates.
The significance of these unconventional resources does not necessarily lie in their volume, but instead, in the broad geographic distribution and the associated economic and political implications. For further detail on shale gas, see our shale gas briefing sheet.
Natural gas-fired power generation technologies are deemed to be best suited for supporting the intermittency of wind power generation by responding to changes in power demand and enabling supply flexibility. This is due to their technical capabilities and relatively low investment costs. Hence, it is likely that as the wind market share increases, the role of natural gas as a flexible fuel supporting wind power will also grow, leading to an increase in natural gas demand in the power sector .
The ICE themed issue on natural gas, Proceedings of the ICE – Energy, considers technological developments in synergies with hydrogen production, distribution and use, which can induce changes in the natural gas industry .
By 2035, fossil fuels are set to lose share in aggregate but are expected to still remain the dominant form of energy . Among non-fossil fuels, renewables (including biofuels) are expected to gain share rapidly, from around 3% today to 8% by 2035, overtaking nuclear in the early 2020s and hydro in the early 2030s .
-  BP, Statistical Review of the World Energy, 2014
-  BP, Energy Outlook 2035, 2014
-  Department of Energy and Climate Change, DECC, Digest of UK Energy Statistics (DUKES), Chapter 4: Natural Gas, 2013
-  Department of Energy and Climate Change, DECC, National energy Efficiency Data-Framework (NEED), 2013
-  National Grid, Gas Ten Year Statement, 2014
-  Department of Energy and Climate Change, DECC, Energy Trends, 2014
-  International Energy Agency, IEA, Gas Medium-Term Market Report, 2013
-  International Energy Agency, IEA, Golden Rules for a Golden Age of Gas, World Energy Outlook, Special Report on Unconventional Gas, 2012
-  UK Energy Research Centre, The UK’s Global Gas Challenge, Research Report
-  Intergovernmental Panel on Climate Change, IPCC, Climate Change 2014 Mitigation of Climate Change, Contribution to the Fifth Assessment Report (AR5), 2014
-  UN Framework Convention on Climate Change (UNFCCC), Report of the Conference of the Parties on its Fifteenth Session, Copenhagen, 2009, Part Two: Action taken by the Conference of the Parties at its Fifteenth Session, United Nations Climate Change Conference Report 43
-  International Energy Agency, IEA, Key World Energy Statistics
-  UK Public General Acts, Climate Change Act 2008
-  Department of Energy and Climate Change, DECC, 2013 UK Greenhouse Gas Emissions, Final Figures, 2015
-  International Energy Agency, IEA, The Impact of Wind Power on European Natural Gas Markets, 2012
-  Institution of Civil Engineers, ICE Proceedings - Energy, Themed issue on natural gas, Volume 168, Issue EN1, 2015