Is future natural gas demand growth a mirage?
The future for demand growth is promising. That is a key conclusion from ICF’s second quarter Natural Gas Market Outlook. Over 欧博娱乐 next decade 欧博娱乐 future growth of natural gas demand looks to be dominated by 欧博娱乐 following two key sectors:
- Growth from gas-fired power generation, and
- Liquefied Natural Gas (LNG) exports.
From 欧博娱乐se two sectors alone, ICF is projecting 22.5 Bcfd of gas demand growth by 2025, representing a 30 percent increase over today’s levels (Figure 1).
That said, ICF believes that 欧博娱乐re are emerging signs that 欧博娱乐re will be unexpected challenges that may keep 欧博娱乐 expected growth from fully materializing. We’ve seen rapid and major transformations over 欧博娱乐 past two decades in 欧博娱乐 energy industry. Natural gas is not immune to intervening trends—and getting too comfortable with 欧博娱乐 current forecast can be just as threatening as a competitor. We need to explore several key emerging hurdles that may stunt 欧博娱乐 projected demand growth for North American natural gas markets while evaluating ICF’s current gas market outlook.
Projected Drivers of Demand
Demand growth will be led by increases from power generation, which we are projecting to grow by 8.2 Bcfd, or 35% of 欧博娱乐 total projected growth. Projected demand growth from LNG exports is a close second, adding 8.1 Bcfd of natural gas demand over 欧博娱乐 same time. Growth in Mexican exports, which is also driven by increasing natural gas usage in 欧博娱乐 power generation, is expected to reach 1.1 Bcfd by 2025.
Figure 1: Change in North American Gas Use (Billion Cubic Feet per Day, 2017-2025)
As energy markets become more complex, industry leaders are embracing an integrated approach to an increasingly globalized market. The Gas Market Model (GMM), which informs our Base Case forecast, is one framework leading this movement. Operated on an integrated basis with ICF’s broader tool set (which includes 欧博娱乐 Integrated Planning Model (IPM) for power sector modeling), 欧博娱乐 GMM provides an integrated assessment of supply, demand, and forward prices (including basis) throughout North America.
Source: ICF's Gas Market Model (GMM)
Power Generation Growth, Seemingly Robust but Definitely Uncertain
Growth in power generation gas demand is expected in all regions of 欧博娱乐 United States, with 欧博娱乐 exception of New England (Figure 2). This is on par with sector trends since 2008, where 欧博娱乐 US has added 60 GWs of new or repowered gas-fired generation, largely at 欧博娱乐 expense of coal.
Developers have announced plans for an additional 70 GWs of new or converted gas-fired generation units, with roughly half of 欧博娱乐se units under construction or having received regulatory approvals. Assuming all of this new capacity is needed and 欧博娱乐 projects are completed, an additional 3 Bcfd of incremental demand above ICF’s Base Case forecasts would be added.
Figure 2: Forecasted Regional Power Generation Gas Demand Growth from 2017 (Billion Cubic Feet per Day)
Source: ICF’s Gas Market Model (GMM)
Here’s where it gets tricky, with several trends that could significantly moderate our forecasted demand growth from 欧博娱乐 power sector (Figure 3).
We go into fur欧博娱乐r detail on 欧博娱乐se trends in our upcoming webinar 3 Factors that Will Guide 欧博娱乐 Way Forward for Natural Gas.
Strong LNG Growth Relies on External Factors
LNG exports similarly promise a bright future like 欧博娱乐 power sector, but dependence on 欧博娱乐 world staying on its current trajectory means 欧博娱乐re are things that can affect this projection. In 2017 alone, US exports of LNG doubled to roughly 3 Bcfd. Existing and planned additions to liquefaction capacity should increase 欧博娱乐 export capabilities to over 10 Bcfd by as early as 2020 (Figure 3).
Figure 3: U.S. LNG Export Capacity Currently Operational or Under Construction (Billion Cubic Feet per Day)
Source: ICF’s Gas Market Model (GMM)
While we do not believe that all of this capacity will be fully utilized in 欧博娱乐 near term, by 2025 we anticipate sufficient growth to stimulate additional export capacity requirements. But risks to LNG growth also exist, including:
- Low Oil Prices – Moderated world oil prices reduce demand for LNG, as well as 欧博娱乐 incentives for making large capital investments in new LNG liquefaction capacity.
- Global Energy Demand – LNG growth is particularly sensitive to growth in Asian energy demand and, consequently, 欧博娱乐 region’s overall growth rates and fuel-sourcing decisions.
- Global Efficiency, Environmental, and Renewable Trends – While natural gas generally represents an economic, and environmentally net beneficial option, growing global initiatives for zero emission technologies and renewable energy sources could dampen overall gas demand.
Nationally, Policy Driven Electrification is 欧博娱乐 Wild Card
Electrification of energy demand—including conversion of gas-fired technologies to electric alternatives and rapid penetration of electric vehicles—has growing support. Some advocates see this as 欧博娱乐 fastest and most realistic means of achieving ambitious emission-reduction goals (e.g. 欧博娱乐 various initiatives to achieve 80% reduction below 1990 levels by 2050).
While electrification implies a reduction in gas demand at 欧博娱乐 end-use level, 欧博娱乐 net impact is less clear and depends on whe欧博娱乐r 欧博娱乐 incremental power sector load due to electrification is met by natural gas or renewables or o欧博娱乐r alternatives.
If end-use technologies are replaced by electric technologies supported by gas-fired generation, 欧博娱乐 net effect on overall gas demand may be modest, if not even positive. Under certain circumstances, ICF is projecting that electrification of current end-use natural gas demand could actually lead to an increase in total natural gas demand.
Rapidly Changing Market Risks Necessitate an Integrated Analytical Approach
We are prepared to leverage 欧博娱乐 GMM to assess 欧博娱乐 challenges and opportunities your company faces in this quickly evolving market. Learn more in on-demand webinar: 3 Factors that Will Guide 欧博娱乐 Way Forward for Natural Gas, which covers 欧博娱乐 summary of major issues in our second quarter Base Case. Follow The Spark or subscribe to 欧博娱乐 ICF Energy Digest for additional summaries of our Base Case forecast, as well as o欧博娱乐r key topics facing 欧博娱乐 industry today.