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WEO2012_Special Report on Unconventional Gas

WEO2012_Special Report on Unconventional Gas

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Global primary energy demand in the Golden Rules Case rises from around 12 700 million
tonnes of oil equivalent (Mtoe) in 2010 to 17 150 Mtoe in 2035, an increase of 35%. Natural
gas demand increases in the period to 2020 by more than 700 bcm (compared with 2010
levels), the equivalent of adding another United States to the global demand balance,
and by a further 1.1 tcm in the period from 2020 to 2035, reaching a total of 5.1 tcm
(4 230 Mtoe) in 2035. This is around 300 bcm, or 6%, higher than in the baseline case
in 2035, with average annual growth over the projecton period of 1.8%, compared with
1.5%. In the Golden Rules Case, gas accounts for about one-third of the overall increase
in primary energy demand, a larger contributon than that made by any other fuel and
equivalent to the growth in demand for coal, oil and nuclear combined (Figure 2.2). By
2035, natural gas has overtaken coal to become the second most important fuel in the
energy mix.

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Figure 2.2 ⊳ World primary energy demand by fuel in the Golden Rules Case

2010

0

1 000

2 000

3 000

4 000

5 000

Oil

Gas

Coal

Renewables

Nuclear

Addi onal
to 2035

Mtoe

Diferent rates of gas demand growth, albeit less pronounced than in the exceptonal year
of 20118

, are expected to characterise gas markets in the longer term (Table 2.4). In the
Golden Rules Case, 80% of the growth in gas demand comes from outside the OECD; China,
India and the countries of the Middle East require an additonal 900 bcm of gas in 2035,
compared with consumpton in 2010. In China and India and other emerging economies,
natural gas at present ofen has a relatvely low share of total energy consumpton and
its use is being specifcally promoted as a way to diversify the fuel mix and reap some
environmental benefts, ofen displacing coal as the preferred fuel to supply fast-growing
urban areas. While growth in gas demand is healthy even in many of the more mature
OECD gas markets – a development that is encouraged by the lower prices for natural gas
in the Golden Rules Case – the growth in China alone is more than the antcipated growth
in all of the OECD countries put together. Gas demand in China grows over the period
2010 to 2035 by 480 bcm, reaching a total of around 590 bcm in 2035 (larger than current
gas demand in the European Union), meaning that developments on both the supply and
demand sides in China will contnue to have a substantal impact not just in the Asia-Pacifc
region but – via the wider efects on trade and prices – in markets around the world.

Gas used for generatng power and heat is the single largest component of gas demand,
accountng for around 40% of total gas consumed. Alongside the lower perceived risk of
building gas-fred plants and the lower environmental impact, compared with other fossil
fuels, the natural gas prices assumed in the Golden Rules Case improve the compettve

8.  Preliminary data suggest that gas consumption in Europe declined by around 11% compared with the
previous year, pulled down by warm weather, a sluggish European economy and a weak competitive position in
the power sector compared with coal. This was in marked contrast to developments in the Asia-Pacific region:
Korea and Japan showed a dramatic upsurge in demand for LNG, the latter linked to reduced output of nuclear
energy following Fukushima, and Chinese gas demand continued its meteoric rise, becoming a larger gas
consumer than any OECD country except the United States. The United States also saw growth in consumption,
of around 2.5%, spurred by low prices that neared $2/MBtu in late 2011.

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World Energy Outlook | Special Report

positon of natural gas and push up gas demand for power generaton to more than 2 tcm
by 2035. The role of gas in power generaton increases from 22% to 24%, with coal and
oil (the later a marginal fuel in power generaton) ceding share in response. Gas use in
buildings and in industry also increases substantally, reaching 1 060 bcm and 970 bcm
respectvely by the end of the projecton period.

Table 2.4 ⊳ Natural gas demand by region in the Golden Rules Case (bcm)

2010

2020

2035

2010-2035*

OECD

1 601

1 756

1 982

0.9%

Americas

841

921

1 051

0.9%

United States

680

717

787

0.6%

Europe

579

626

692

0.7%

Asia Oceania

180

209

239

1.1%

Japan

104

130

137

1.1%

Non-OECD

1 670

2 225

3 130

2.5%

E. Europe/Eurasia

662

736

872

1.1%

Russia

448

486

560

0.9%

Asia

398

705

1 199

4.5%

China

110

323

593

7.0%

India

63

100

201

4.7%

Middle East

365

453

641

2.3%

Africa

101

130

166

2.0%

Latn America

144

200

252

2.3%

World

3 271

3 982

5 112

1.8%

European Union

547

592

644

0.7%

* Compound average annual growth rate

Although volumes are small compared with the other end-use sectors, the Golden Rules
Case sees strong growth in gas use in the transport sector. This is encouraged both by
lower prices, compared with oil, and also by government policies, for example support for
developing the necessary refuelling infrastructure. Use of natural gas for road transportaton
increases by more than six tmes in the period to 2035, reaching close to 150 bcm in 2035.
For the moment, transport is the only major end-use sector where gas is not widely used:
although there are viable natural gas vehicle technologies, there are only a few countries
where these are deployed at scale. More than 70% of all natural gas vehicles and half of all
fuelling statons are found in just fve countries: Pakistan, Iran, Argentna, Brazil and India.
In our projectons, India and the United States lead the growth in natural gas consumpton
for transport, primarily in commercial feets, buses and municipal vehicles that can use
central depots for refuelling.

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Implicatons for other fuels

The implicatons of applying the Golden Rules to unconventonal natural gas extend beyond
gas to other competng fuels. As the share of gas rises from 21% of global primary energy
consumpton in 2010 to 25% by 2035 (compared with 23% in the baseline case), growth
in demand for oil and coal is constrained and, marginally, also demand for nuclear and
renewable energy (Table 2.5).

Table 2.5 ⊳ World primary energy demand by fuel in the Golden Rules Case

Demand (Mtoe)

Share

2010

2020

2035

2010

2020

2035

Coal

3 519

4 109

4 141

28%

28%

24%

Oil

4 094

4 381

4 548

32%

29%

27%

Gas

2 700

3 291

4 228

21%

22%

25%

Nuclear

719

927

1 181

6%

6%

7%

Hydro

295

376

472

2%

3%

3%

Biomass

1 262

1 496

1 896

10%

10%

11%

Other renewables

110

287

676

1%

2%

4%

Oil contnues to be the dominant fuel in the primary energy mix, with demand increasing
from about 4 100 Mtoe in 2010 to 4 550 Mtoe in 2035, but its share in the primary energy
mix drops from 32% in 2010 to 27% in 2035. Compared with the baseline case, lower gas
prices promote substtuton for oil in the transport and power sectors, resultng in global oil
demand being reduced by some 2 million barrels per day (mb/d) in 2035.

Primary coal consumpton in the Golden Rules Case rises untl around 2025 and then levels
of. Its share in the energy mix declines from 28% in 2010 to 24% in 2035. In that year,
coal demand is around 3% lower (115 Mtoe) than in the baseline case, an amount greater
than total current European imports of hard coal. Three-quarters of coal demand growth
stems from the power sector. Lower gas prices favour gas over coal for new builds in most
countries (Figure 2.3). However, in some countries, such as China, coal remains cheaper
than gas, in the absence of prices that internalise environmental externalites, such as
local polluton or CO2 emissions. In this situaton, Chinese government policies aimed at
increasing gas use are crucial to its development. Globally, excluding China, 3.5 units of gas-
fred electricity generaton are added for each new unit of coal-fred electricity generaton.

Over the Outlook period, nuclear output grows, but it is marginally below our baseline
case in 2035. Gas prices have a direct infuence on new nuclear constructon in liberalised
markets, mostly in OECD countries, where we expect nuclear output to grow 12% less
than our baseline. However, most of the global growth in nuclear will occur in non-OECD
countries, where specifc natonal plans to expand nuclear capacity are less likely to be
afected by changing market conditons.

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World Energy Outlook | Special Report

Figure 2.3   Electricity generating costs for new coal- and natural gas-fred

power plants in selected regions in the Golden Rules Case, 2020

0

20

40

60

80

100

Coal ultra-
supercri cal

United States

China

European Union

Dollars per MWh (2010)

Natural gas
combined-cycle
gas turbine

The global outlook for renewable sources of energy is not afected substantally by the
increased use of gas in the Golden Rules Case, with volumes and shares of output remaining
very close to those in the baseline case. Due to lower gas (and consequently electricity)
prices, the growth of electricity output from non-hydro renewables is reduced globally by
5% compared with our baseline. This global average fgure hides some larger diferences
in specifc countries, where the impact is stronger, due to the price levels and to the type
of support policies in place. This is, for example, the case in the United States, where the
growth of electricity from non-hydro renewables is some 10% lower with respect to the
baseline.

There are factors working both against, and in favour of, renewables in a world of more
abundant gas supplies. Depending on the type of policies in place, an abundance of natural
gas might diminish the resolve of governments to support low and zero-carbon sources of
energy: lower gas prices (and therefore lower electricity prices) can postpone the moment
at which renewable sources of energy become compettve without subsidies and, all else
being equal, therefore make renewables more costly in terms of the required levels of
support. However, an expansion of gas in the global energy mix can also facilitate greater
use of renewable energy, if policies are in place to support its deployment, given that
gas-fred power generaton can provide efectve back-up to variable output from certain
renewable sources. Moreover, lower electricity prices can encourage customer acceptance
of a higher component of electricity from renewable sources. Ultmately, the way that
renewables retain their appeal, in a gas-abundant world, will depend on the resolve of
governments. We assume that existng policies and support mechanisms remain in place as
part of the eforts by governments to address the threat of a changing climate.

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