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IEA cuts 2040 global gas demand forecast, sector facing 'significant' uncertainty

Highlights

Advanced economies to see dip in gas demand

30% increase in demand concentrated on Asia

Future depends on policy support for gas

London — The International Energy Agency expects global gas demand to reach 5.22 Tcm by 2040, it said in its latest World Energy Outlook published Oct. 13, down from the 5.4 Tcm it was predicting in last year's outlook.

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The IEA said demand in the world's advanced economies is forecast to dip by 2040 -- the first time it has made such a forecast -- with the 30% total increase in consumption by 2040 driven almost entirely by Asia and the Middle East.

Gas still faces "significant uncertainty" as Asian economies emerge from the COVID-19 pandemic, the agency said, with further demand growth dependent on policy support.

It expects global gas demand in 2020 to fall by 3% year on year due to the pandemic.

Despite downgrading its long-term global gas demand forecast, the IEA said gas would still fare better than other fossil fuels out to 2040.

In its forecasts under the central Stated Policies scenario (STEPS), the IEA expects global gas demand to rise by 30%, with growth concentrated in South and East Asia.

"Policy priorities in these regions –- notably a push to improve air quality and to support growth in manufacturing –- combine with lower prices to underpin the expansion of gas infrastructure," the IEA said.

"By contrast, this is the first World Energy Outlook in which the STEPS projections show gas demand in advanced economies going into slight decline by 2040," it said.

The majority of gas demand growth over the next decade, the IEA said, is expected to take place outside of advanced economies, especially in China, India, Southeast Asia and the Middle East.

It said this growth would be spurred by "an oversupplied global gas market which has opened opportunities for price sensitive buyers."

But, it said, global gas demand growth prospects would continue to rely "heavily" on policy support in the form of air quality regulations or other restrictions on the use of more polluting fuels, as well as on significant investment in new gas infrastructure.

It estimates the need for $70 billion/year in investment. "A weaker macroeconomic outlook could limit the capital available to major gas consumers, making it more difficult to fund this infrastructure," it said.

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Power, industrial sectors

In the power sector, the IEA said the drop in gas spot prices in the US, EU and Asia since 2019 had increased gas's competitiveness against coal.

"There is also policy support in several countries for developing gas-fired power generation in place of coal or oil, particularly in Asia and the Middle East," it said.

"Together, these factors have led to around 80 Bcm worth of switching to gas in the power sector over the course of 2018-2020, a trend that continues in the STEPS: the majority of the net growth in gas demand in the power sector to 2025 is attributable to fuel switching," it said.

However, the window for coal-to-gas switching rapidly closes in the 2020s, especially in the US and the EU, as slowing growth in electricity demand and expanding renewables narrow the space in which gas and coal compete for market share.

It said that gas-fired power plants would remain important sources of flexibility in renewables-rich power systems over the longer term, but fewer volumes of gas are required in the power sector to fulfil these functions.

Industry, it said, is responsible for the largest share of the increase in gas demand over the next decade, with gas use in industry forecast to be a quarter higher than 2019 levels by 2030.

Nearly 95% of this growth arises in emerging market and developing economies, with China and India leading the pack, the agency said.

Supply trends

The IEA has also downgraded its 2040 forecasts for global gas production in line with the demand reduction.

"With total investments in the gas supply chain down by $700 billion over the period to 2040, the lower supply is not subsequently made up in the second-half of the projection period," it said.

Nonetheless, even with these revisions, there is still a substantial overall increase of over 1.1 Tcm in gas production by 2040 compared with 2019 levels.

Shale gas production in the US is forecast to bounce back quickly, while Russia and the Middle East account for the majority of remaining growth.

By 2030, the US will see a 130 Bcm increase in gas production, lower than projected in the previous year's outlook, but still the largest projected growth of any country.

"In the short term, the drop in US tight oil production in the aftermath of the pandemic drives associated gas production lower, while weak export margins reduce demand from US LNG terminals," it said.

"However, production rebounds relatively quickly as dry shale gas basins respond to the lost output in associated gas, particularly in the Appalachia and Haynesville plays. This means that total gas production is on course to surpass its 2019 peak by 2022," it said.

Russian gas production, meanwhile, is expected to fall by nearly 100 Bcm in 2020, but economic recovery, additional pipe exports, notably to China, and an expansion of LNG capacity underpin renewed production growth over the next decade, it said.

In the Middle East, several projects under development -– alongside an expansion of Qatari LNG exports –- are expected to help gas production rebound relatively quickly.

The IEA said that production in other export-oriented regions such as North Africa and the Caspian has been revised down as a result of the weaker medium-term outlook for global gas trade, although prospects pick up later in the 2030s as markets tighten as a consequence of subdued spending on new projects.

"Higher cost development projects elsewhere look increasingly difficult to justify," the IEA said, pointing to new offshore developments in the UK Continental Shelf and parts of the East Mediterranean.