Current and Future Supply and Demand of Natural Gas

¶ … Future Supply and Demand of Natural Gas

The technology developed in the United States has become available for application in other countries mainly through efforts of major service companies. Until the mid 1990s, Canada's gas production was predominantly from conventional gas formations. This conventional gas filled the available pipeline capacity and unconventional gas resources, which are more difficult to produce, were largely ignored. However, as pipeline capacity was expended and conventional gas production began approaching a peak, market conditions in Canada began to favor development of unconventional gas (Harry, pp88-96) In the recent past, the natural gas markets were fairly predictable; they are now undergoing profound and uncertain changes. Independently, each regional market had developed gradually deposits from the nearest pipeline networks and limiting exchanges between areas. The current trend is marked by greater competition between the available sources and greater flexibility in systems gas. (Tad, pp14-15)

It is apparent that technological innovations and improvements have played an important role in increasing unconventional natural gas development in North America. This technology, advanced over the past three to four decades, promises to become a worldwide commodity through efforts of many service companies. China, with its sizable unconventional natural gas potential, has every prospect of success to repeat the experience of the U.S. And Canada in adopting new technologies. The issue of energy security and vulnerability is currently of more concern to global economies than it has ever been before. As demand grows, energy resources become strategic commodities susceptible to being used for geopolitical leverage. The growing influence of geopolitical factors on the global energy market has profound implications for the interests, strategies, and policy-making of nations as well as for the ways that oil and natural gas companies conduct their business. (Wengenmayr and Thomas, pp42-43)

Background

The main producing countries in 2006 were the Russian Federation and the United States with 21.3% respectively and 18.5% of world production. Note that North America and the former Soviet Union produced 53.6% of total production in 2006. Other states also show a significant production. This is the case, for example, Canada (6.5%), Iran (3.7%), Norway (3%), Algeria (2.9%), UK (2.8%), Indonesia (2.6%), Saudi Arabia (2.6%) and Netherlands (2.2%) *. These ten countries accounted for two thirds of world production of natural gas in 2006. (Tad, pp14-15)

Total world production in 2006 was 2.865 trillion cubic meters, an increase of 3% over the previous year. An increased production of natural gas worldwide is expected due to exploration projects and expansion planned in anticipation of future demand upward.

The main consumer of natural gas in 2006 was the United States with 22% of total consumption and the Russian Federation, with 15.1%. North America and the former Soviet Union together consumed about 49% of natural gas. (Douglas and Marek, pp117-28)

The share of Europe (EU 25) in the total consumption of natural gas was 16.3%. These three areas accounted alone for nearly two-thirds of total consumption in 2006. The consumption growth was 2.5% between 2005 and 2006, with rates highest in Asia / Pacific (6.5%) and Africa (5.5%). The main energy agencies worldwide provide a significant increase in demand around the world over the next twenty years; growth should mainly take place in developing countries. (Tad, pp14-15)

Discussion

Since the 70s, natural gas is the primary energy in fashion, one whose rate annual growth is the highest sustainable worldwide (2.5% per year). Its main outlet is power generation with gas turbine combined cycle considered as one of the cheapest technology. (Kemp, pp4-9) Due to physical constraints pipelines global market did not exist but several regional markets coexisted with their own dynamics of supply, demand and prices: in North America, Europe and Asia. Indeed, the rigidity and cost of transporting gas resulted necessarily a fixed link between the field and the end user. Since transport is 7-10 times more expensive than oil, the sustainability of demand for gas would be and ensured financial and technical risks were taken. (Tad, pp14-15) The liquefaction was then allowed transport gas over long distances at low cost compared to gas pipelines, thereby allowing greater diversification of suppliers. Gradually, the natural gas markets were transformed with the revolution of the impression of a LNG creation of a world market and growth of spot markets. Little-used energy source until the oil shocks, natural gas was of interest lower compared to other fossil fuel: difficult to transport, less energy as coal, dangerous to handle, heavy investment and it was often hard flared. (Marriot, pp33-48)

Its operation is recent, its reserves, still poorly understood, are already abundant. In 2008, they represented 60 years of consumption and were concentrated to 40% in the Middle East. It should be noted that three countries held more than 50% of the world: Russia (27%), Iran (15%) and Qatar (14%). (Robert, pp1-3)With the evolution technology, mapping changes at the whim of unconventional gas discoveries leading to a reassessment of reserves from 60 to 250% depending on the area. (Ammann, pp16-38)

This year, United States became the first producers downgrading Russia, which nevertheless remains the leader in terms of exports. Russia still retains a strategic in the geopolitics of natural gas reserves and due to its geographical position, but perhaps for a shorter period than expected. (Viscusi et al. pp102-06) In 2009, natural gas accounted for a quarter of world energy consumption, against 36% for oil. Driven by electricity generation, the growth in demand gas is higher in non-OECD countries in the Middle East and Asia. (Wengenmayr and Thomas, pp42-43) Today the United States (23%) and Russia (15%) remain by far the two big countries gas consumers. North America is the largest natural gas market with a third of the world consumption which comes largely from his home production. The gas occupies a strategic place in the U.S. particularly in the electricity mix, which he is second fuel strong growth. To meet this rising demand, the National production should continue to play a major role, but an increased emphasis was scheduled for LNG with many terminal projects. From 2008, the forecast LNG imports from U.S. Department of Energy have been revised downwards with a 3% share in the supply in 2020 against 16% in 2008. (Douglas and Marek, pp117-28)

The effects of unconventional gas discoveries began in effect to appear on the market North American. Between 2003 and 2008, natural gas prices in the U.S. rose to 35 € / MWh. The exploitation of unconventional gas date from 2006-2007 during the high prices and development of new drilling techniques. Since 2008, half of the gas consumed in the U.S. comes from unconventional gas. Improved techniques fracturing of wells and the use of horizontal drilling technologies enable the recover gas trapped in geological formations such as shale. (Kemp, pp4-9)

Inconceivable a few years ago at the time when the United States was considering able to import gas from Russia, the findings bring this country to self-sufficient, or even consider being a net exporter, resulting in lower prices sustainable gas in the area. If it turns out that the unconventional gas is economically recoverable in North America, reserves could be multiplied by six. (Marriot, pp33-48)

Demand and supply

The total energy demand for end use slows from 1.4% per year between 1990 and 2008 to 1.3% per year over the study period. Despite the modest slowdown in global growth in demand, a further review of the results indicates a decline in many key determinants of energy demand. Among them, there is a slowdown in population growth, higher prices of energy, lower economic growth in past years and enhanced programs in energy efficiency and energy saving. (David, pp19-46) Compared to historical growth rates, growth in energy demand in the commercial and transport slows dramatically. In regard to the commercial sector, the average annual growth rate of its historic fall from 2.0% to 1.0% during the period analyzed, while the transport sector flexes from 1.9% to 1.4%. (Douglas and Marek, pp117-28)

Moreover, under the leadership of federal and provincial programs, there is a significant breakthrough biodiesel and ethanol in the sector. The growth in demand in the residential sector fell by 0.7% per year it was from 1990 to 2008 to 0.6% from 2010 to 2035. The industrial sector, which accounted for nearly half of energy demand in 2010, stands apart, since it was up. (Robert, pp1-3) The sustained growth of many industries neutralizes the decrease in energy intensity that knows this area during the study period. Energy demand in the industrial sector increased at an annual rate of 1.6% during the study period, compared to 1.2% during the reference period, from 1990 to 2008. (Ammann, pp16-38)

Emerging trends related to supply and energy demand will have a significant impact on trade and energy needs of new infrastructure. Growth of oil production from the oil sands and a modest growth in demand for petroleum products will be effectively triple the net supply of crude oil available for export by 2035. Meanwhile, it is expected that the increased demand for Global population natural gas will gradually reduce the net supply of clean natural gas available for export until 2020. Thereafter, the supply remains stable until the end of the period. In terms of the net supply of electricity available for export, it doubles during the study period. (Viscusi et al. pp102-06)

The electricity prices are set in regional markets. The consumer price takes particular account of production costs, transport and distribution. They are generally lower in the countries that produce hydroelectricity, where there are a significant proportion of low-cost cultural assets, including hydroelectric plants, which consist of; often have several decades and whose construction costs are largely amortized. (Ammann, pp16-38)

In most jurisdictions, prices are based on the actual cost of providing services to consumers and include a regulated rate of return for generation assets, transmission and distribution. This model is recommended by all countries and territories. Electricity prices are set by the conditions of competitive wholesale markets. (Kemp, pp4-9)

No doubt while the geopolitical equation would change! Technical developments and prices were the determining factors in setting exploitation of unconventional gas. Economically, it is noteworthy that the number drilling has declined along with the wholesale price (between 8 and 15 € / MWh), while in same time the level of production remained stable. The marginal costs of production therefore appear to be declining. Companies do not advertise their breakeven which nevertheless seem to be around 11 € / MWh (or even 5 € / MWh) by the fields. The exploitation of unconventional gas is certainly more expensive and more polluting but new techniques have already divided the cost by two. The extraction requires quantities significant energy, water, or chemicals, degrading the balance sheet Environmental unconventional gas compared to conventional gas. (Douglas and Marek, pp117-28)

Microeconomics of supply and demand

In 2009, the dynamics of supply due to lower prices when demand has declined. Reduced imports of U.S. LNG have had an impact on other markets with the provision of gas quantities diverted to Europe and Asia. The excess gas has challenged some LNG projects not only in North America but throughout the world. Oversupply has arisen because the United States were no longer applicants and many LNG terminals have been commissioned at the same time. Some countries question now on their continued investment in LNG will be subject to spot prices to their lowest level since 2002, and whose markets are uncertain in terms of demand. Price differences between the three main application areas show the surplus U.S.: Asian and European buyers pay the gas near parity energy with oil while in the United States; it is trading at about a third of cost equivalent oil. (Ammann, pp16-38)

In Europe, contracts have a clause indexing of gas prices on the oil. Yet the gas spot prices decreased at the same time as oil rose. In early 2010, spot prices were twice lower than long-term contracts term. Some European consumers have taken the minimum share provided in their contract; the rest of their need was purchased on the spot markets. Without going into debate on long-term contracts in Europe, several gas companies claim an overhaul contract with an escalator on the spot price of natural gas. (Douglas and Marek, pp117-28) The Forum of Gas Exporting Countries is now able to change the trend. Established in 2001, the Forum brings together the leading countries in production natural gas that have agreed to exchange information. (Wengenmayr and Thomas, pp42-43)

No consensus exists for the introduction of production quotas: the members favor their income exports and do not wish to reduce their production volume. The "revolution expected" LNG has not taken place contrary to the "silent revolution" of unconventional gas. (Evans, pp1-6) Discoveries in the United States, first gas consumers natural, have questioned the organization of markets. The gas bubble is born from the oversupply resulting in lower gas prices. The success of unconventional gas limits the development of LNG (except Asia) and its expected consequences. (Viscusi et al. pp102-06)

It entails a new configuration with fewer interactions between regional markets. Growth Asian demand and market development in South America with the findings Brazil are still to be considered. (Evans, pp1-6) The map is redrawn with the gas new discoveries but also with a set of dynamic businesses. The traditional natural gas companies are forced to rethink their strategy with market developments. Stable and predictable markets for natural gas have become an image of the past; they are now uncertain and complex. (Douglas and Marek, pp117-28)

The projections for electricity supply are related to the application. Technological advances, the adoption of new policies and changing perspectives in relation to supply and fuel prices may dictate the choice of forms of production and the energy portfolio in the coming years. In some cases, accepting the social and local electrical infrastructure projects is also an important factor. (Kemp, pp4-9)

Analysis

The relative profitability of new power projects is driven by fuel prices and all capital costs. These components vary with the type of technology considered. It is generally assumed that the cost of fuel in the case of renewable energy is zero and the production of electricity from fossil fuels generally includes a fuel cost above that of nuclear power plants. The uncertainty regarding the cost of fuels used to generate electricity affects the type of technologies and projects that are selected and, by extension, on the composition of future electricity supply. (Ammann, pp16-38)

Currently, the costs of non-hydro renewable, like wind and solar are higher than conventional sources. However, in some markets, it encourages their deployment through financial incentives such as feed-in tariffs guaranteed. Reliability is also an issue, the questions concerning the amount of electricity generated by various forms of renewable energy that can be integrated to the grid. The reduction or elimination of incentives without reducing costs through improvements in technology or questions concerning joining the network may limit the growth of these energy sources. (Douglas and Marek, pp117-28)

Regulation and government policy is impacting on investment and the activities of plants are constantly changing. Projections of supply and energy demand to 2035 provide a look at supply and demand for energy in Global until 2035. (Viscusi et al. pp102-06) Based on information, trends, policies and technologies currently available, the projections show a preview of what will be the Global population energy system over the next 25 years. During this period, new information becomes available, trends and policies will change and technology will be perfected, disproving certain assumptions in the paper. (Marriot, pp33-48)

Double oil production by 2035 and oil sands provide most of this increase. The downward trend in increased exploitation of natural gas is reversed from 2016, driven by the extraction of tight gas and shale gas production grows to record levels at the end of the period analyzed. Electricity production is slowly increasing, and renewable such as wind, hydropower and biomass are needed among the various energy sources. (Ammann, pp16-38) The slowdown in population and economic growth, higher prices of energy and implementation of best efficiency programs and energy conservation are factors that contribute to slowing demand in the residential and commercial and transport sector. (Viscusi et al. pp102-06) In the industrial sector, the sustained production of oil and gas, combined with strong economic growth in many energy-intensive industries, resulting in an increase in demand that exceeds the pace of past years. The offer record and slowing growth cause a surplus of energy available for export. The amount of oil and electricity available for export increases dramatically, while the net availability of natural gas gradually decreases to stabilize at around 2020. (Douglas and Marek, pp117-28)