Published September 2016
While world energy demand continues to increase, alternative forms of energy—nonconventional, renewable sources such as water, wind, and solar power—are making headway in easing carbon emissions from traditional fossil fuel–derived manufacturing. As such, countries are developing readily available, relatively clean-burning natural gas to meet their energy requirements. Advances in horizontal drilling and hydraulic fracturing (“fracking”—natural gas unlocked from shale formations) hold the prospect of becoming a substantial unconventional contributor to the world natural gas supply portfolio, not only in the United States and Canada but also in Latin America, China, and Africa.
For environmental reasons, natural gas is thought of as the stepping stone between fossil fuels such as coal and oil, and renewable energy such as water, wind, and solar power. Much of this gas will come from nonconventional sources, primarily horizontal drilling and hydraulic fracturing of shale formations. The combustion of natural gas emits about 30% less carbon dioxide (CO2) than oil, and about 45% less carbon dioxide than coal. Over the last decade, consumption of shale-based natural gas has reduced about 1.5 billion barrels oil equivalent per day of carbon dioxide, which is equal to that saved by use of solar and wind power combined over the same period. Therefore, natural gas is increasingly thought of as an ideal fossil fuel, as a long-term bridge to newer but slower growing consumption of nonfossil “renewable” sources such as solar and wind power.
The following pie chart shows world consumption of natural gas:
Natural gas reserves are currently estimated at 6,586 trillion cubic feet in 2015 (186.6 trillion cubic meters). Reserves are forecast to remain relatively stable, as natural gas consumption growth is expected to be matched by natural gas discovery. Much of the future growth is forecast to come from horizontal drilling and hydraulic shale fracturing applications, most of which are currently in the United States, but will likely grow from other regions as well. This technology has allowed the profitable production of natural gas (and oil) from previously considered low-permeability geologic formations. Other regions, such as China and Russia, have large estimated shale gas reserves associated with nonconventional sources and should at some point begin to develop these.
During the decade leading up to 2014, natural gas prices climbed, before dropping dramatically beginning in late 2014, and continuing into 2016. As a result, many conventional and planned shale exploration projects were delayed or cancelled due to low natural gas and crude oil prices. Production, however, continued, as the money had already been spent and attempts were made to recover investments.
US natural gas consumption is expected to grow, but more slowly than in the recent past, at about 2.5% per year over the next five years. This reflects slower growth in all sectors except electric power production; consumption for power generation is slated to grow at 4% per year, as gas continues to replace coal-fired facilities. This growth is dependent on lower-than-historical natural gas prices as the domestic gas supply increases from shale fracking and as natural gas continues to be the preferred transitional fuel to a higher percentage of renewables in the US energy profile.
Russia is by far the largest producer of natural gas in Central and Eastern Europe, accounting for nearly 75% of regional production and more than half of the total output in Europe/Eurasia combined. In addition, Russia has the second-largest proved natural gas reserves in the world, at approximately 17% of the global total in 2015. Unlike other major countries, Russia obtains 53% of its domestic energy requirements from natural gas. The future of the Russian natural gas industry lies in the development of the Western Siberian gas fields.
Significant increases in natural gas consumption (about 4% per year through 2020) are also expected in Asia, particularly in China and India. These regions remain fertile areas of growth; only about 6% of Chinese and 18% of remaining Asian Pacific power energy requirements are satisfied by natural gas. Gas reserves, some of which are shale-based, a growing economy, and increased demand in the industrial, commercial, and residential sectors will all lead to Chinese growth. Japan continues to rely almost entirely on imports to meet its domestic energy requirements. Imports, all in the form of liquefied natural gas (LNG), account for all of Japan’s natural gas supply. The majority of LNG is supplied from Australia and Southeast Asia, including Indonesia and Malaysia, as well as from Qatar and Russia in 2015.
Natural gas as a percentage of total Western European energy use has fallen to less than 22% from more than 23% in 2011. Some of this trend has been due to constraint on supplies and the requirement to import a large percentage of the gas consumed. Nevertheless, some forecasters are calling for a resumption of modest share growth. Even though Western European consumption of natural gas has declined over the last five years, it is expected to grow in the forecast period, but below 1% per year. Environmental concerns will be an additional driving factor in the increase of natural gas consumption in Europe. As is the case in other industrialized economies, gas is favored over oil and especially coal.
World natural gas consumption over the last 10 years increased by a total of 26% to 2015. The total world supply of natural gas currently outweighs total world demand, so the supply is long and prices are lower. North America was the largest natural gas–consuming region in 2015, with 28% of the world total, followed by Central and Eastern Europe and Asia and Oceania. Consumption in Asia and Oceania and the Middle East has grown significantly in the past decade and is forecast to continue further development.