The International Energy Agency (IEA) is projecting that global demand for natural gas will start to dip by the end of this decade, but should remain strong and near a historic peak through 2050.
In its latest 350-page annual World Energy Outlook (WEO), researchers said that for the first time in the history of the forecast, they expect demand for all three fossil fuels – oil, natural gas and coal – to decline by 2030 under all scenarios.
“The energy world will look very different by 2030, even under today’s policy settings,” said IEA chief Faith Birol. He said fossil fuels as a share of global energy supply, which has been around 80% for decades, would “decline significantly by 2030.”
Researchers acknowledged, however, that some key uncertainties could affect future trends, including structural changes in China’s economy and the pace of global deployment of solar energies.
Resilient Natural Gas Demand
The IEA provided different scenarios based on different policy and economic outcomes. The Stated Policies Scenario (STEPS) is an outlook based on the latest policy settings, including energy, climate and related industrial policies.
Global natural gas demand would be more resilient than coal and oil under the STEPS scenario. It would only dip slightly from 2030, plateauing at around 4,100 Bcm through to 2050. Near-term natural gas demand, while lower, still grows. Researchers expect worldwide demand to rise every year by 1.6% on average between 2022 and 2026, down from 2.5% between 2017 and 2021.
Overall, natural gas demand growth would be around 0.4%/year from now until 2030. The power and buildings sectors “have already seen peaks in natural gas capacity additions for power plants and space heating boilers, and muted demand in these two sectors reduces natural gas use enough to cause it to peak by 2030,” researchers said.
Overall, however, installed capacity of natural gas power would continue to expand over time. “Gas differs in this respect from coal, where installed capacity reduces in the future,” the WEO authors said.
Renewables are set to contribute 80% of new power capacity to 2030 in the STEPS, with solar photovoltaics alone accounting for more than half.
Demand reductions in advanced nations would be pressured by rising demand in industrializing economies, the IEA said.
“The drivers for growth in demand for energy services in most emerging and developing economies remain very strong,” according to the report. The global population is expected to grow by about 1.7 billion by 2050, almost all of which would be in urban areas in Asia and Africa.
India is the world’s largest source of energy demand growth in the STEPS, ahead of Southeast Asia and Africa.
“In advanced economies, the rebound in natural gas demand seen in 2021 did not last long, and demand in 2022 was below pre-pandemic levels. Demand continues to decline in the STEPS, and by 2030 this more than offsets continued demand growth in emerging market and developing economies,” researchers said.
LNG Supply Glut?
The IEA researchers also are projecting an oversupply of liquefied natural gas globally in the next few years as more export terminals come online.
“Starting in 2025, an unprecedented surge in new LNG projects is set to tip the balance of markets and concerns about natural gas supply,” researchers said.
This would ease supply fears for Western Europe that arose after Russia’s invasion of Ukraine. “Market balances remain precarious in the immediate future but that changes from the middle of the decade,” the authors said.
Projects are forecast to add 250 Bcm/year of liquefaction capacity by 2030, equivalent to around half of today’s global LNG supply. The biggest increase would be between 2025 and 2027. Half of the new projects are being developed in the United States and Qatar.
“The strong increase in LNG production capacity eases prices and gas supply concerns, but comes to market at a time when global gas demand growth has slowed considerably… Alongside gas contracted on a longer-term basis to end-users, we estimate that more than one-third of the new gas will be looking to find buyers on the short-term market,” the authors said.
Russia would be the most impacted, with its share of internationally traded gas dropping from 30% in 2021 to 15% 2030, according to the STEPS scenario.
Researchers noted that the Russian invasion of Ukraine was principally behind major changes in their outlook for natural gas. Compared to the 2022 WEO, IEA reduced its demand forecasts for natural gas in 2040 by 570 Bcm. IEA also reduced gas demand by another 140 Bcm in the STEPS in this latest WEO.
Differing Outlooks
Predicting future energy supply and demand scenarios have proved to be remarkably difficult, and forecasters have often missed the mark.
According to the Institute of Energy Economics, a think tank based in Japan, the world will need $7 trillion in investment to ensure there is sufficient gas supply through 2050.
In addition, the International Gas Union (IGU) in a recent report said “the gas market remains undersupplied,” and “highly sensitive to fluctuations on supply and demand sides.” The IGU researchers added that “massive divergences across international energy and gas demand outlooks vis-à-vis low investments in natural gas, low carbon and renewable gases, fuels risk of worsened energy shocks toward 2030 and beyond.”
The industry group warned that the current pipeline of natural gas projects will not satisfy many of the possible demand outlooks. “Without further investment, the current existing and approved gas production level is expected to reach roughly 4,100 Bcm in 2023, declining to 3,100 Bcm in 2030 and further to just under 1,000 Bcm in 2050, due to asset maturation and natural decline,” the IGU report said.
Wood Mackenzie, meanwhile, in the 2023 Energy Transition Outlook issued in September, said, “Gas demand is projected to grow for 10 years in all scenarios due to its wide range of applications. Demand weakness in buildings and industry is offset by increased coal-to-gas switching in power and feedstock for blue hydrogen production.”
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