Natural gas

What is natural gas?
Natural gas is a mixture of several hydrocarbon gases, including methane (between 70% and 90%), ethane, propane, butane and pentane, as well as carbon dioxide, nitrogen and hydrogen sulphide. The composition of natural gas can vary widely, depending on the gas field. Natural gas is referred to as “wet” when hydrocarbons other than methane are present, “dry” when it is almost pure methane, and “sour” when it contains significant amounts of hydrogen sulphide.

Does the IEA analyse the gas market?
Yes. The IEA publishes regular medium- and longer-term analysis of the outlook for gas markets, based on the extensive data that it collects on consumption, production, trade and prices.

The longer-term analysis, currently to 2040, is included in the annual World Energy Outlook (WEO), which contains detailed projections and analysis broken down by fuel, sector and country. In response to supply and demand factors increasingly pointing to a future in which natural gas plays a greater role in the global energy mix, a special WEO report was published in 2011 on the prospects for natural gas, which addressed the question "Are We Entering a Golden Age of Gas?". This report examined the key factors that could result in a more prominent role for natural gas in the global energy mix, and the implications for other fuels, energy security and climate change. The report presented a scenario in which global use of gas rises by more than 50% from 2010 levels and accounts for more than one-quarter of global energy demand by 2035. However, it also struck a cautious note on the climate benefits of such an expansion, noting that an increased share of gas in the global energy mix is far from enough on its own to put the world on a carbon emissions path consistent with a global temperature rise of no more than 2°C. A second special report released in 2012 looked at the environmental impact of unconventional gas production, including an analysis of the "Golden Rules" needed to support a potential "Golden Age of Gas".

The IEA also produces an annual report focused on gas, the Medium-Term Gas Market Report (MTGMR), that analyses the latest trends in global gas markets, examines investments trends in different parts of the gas value chain, and provides supply, demand and trade forecasts over the upcoming five years. The report also looks in detail at the development of liquefied natural gas (LNG) trade, prices and unconventional gas.

How much gas is consumed worldwide?
Global gas demand was estimated at just under 3 500 billion cubic metres (bcm) in 2014, and the IEA Medium Term Gas Market Report 2015 saw an average annual growth rate of 2% from 2014 to 2020. In absolute terms, cumulative growth in the period stands at 431 bcm. Gas demand increased by an annual average of 2.3% in the decade to 2014. Gas has a 21% share in the global primary energy mix, behind oil and coal. For comparison, OECD Europe's gas consumption in 2014 totalled 458 bcm, and in terms of volume, that amount of natural gas could fill roughly 180 million Olympic swimming pools.

Which countries are the largest consumers and producers?
The United States, Russia, China and Iran are the world’s largest consumers of gas. The largest producers are Russia, the United States, Canada, Qatar and Iran. It is important to note that Chinese gas consumption rose by more than two-thirds over 2009-14, adding more than 8% in 2014, to reach nearly 180 bcm.

How much gas is there in the world?
Remaining resources of natural gas are abundant and can comfortably meet the projections of global demand growth included in all three of the IEA World Energy Outlook scenarios to 2040 and well beyond. Proven reserves stood at 216 trillion cubic metres (tcm) at the end of 2014, equal to more than 60 years of production at current rates. However, proven reserves are only a fraction of total remaining technically recoverable resources, which provide a better indication of the available resource base and are the key parameter used in IEA modelling of future gas production. The World Energy Outlook 2015 estimated that, at the end of 2014, total remaining technically recoverable resources amounted to at least 781 tcm.

How is consumption and production of gas measured?
Worldwide, many different units are used by countries, which sometimes make it difficult to reconcile data. At the IEA, natural gas statistics are given in billion cubic metres (for volume) and in Terajoules (for energy). Worldwide, units such as kilowatt hours (kWh), kilocalories (kcal), million British Thermal Units (MBtu or MMbtu), therms (th), million tonnes of oil equivalent (mtoe), billion cubic feet (bcf) or billion cubic feet per day (bcf/d) are used. Data on liquefied natural gas are given in tonnes or in bcm. It is worth noting that 1cubic metre of LNG has much more energy than 1cubic metre of gas at atmospheric pressure, due to the different physical states (i.e. one is in gaseous form, and one is a liquid). A basic conversion tool can be found on the IEA website.

In which sectors is natural gas consumed?  
Natural gas is traditionally consumed in the residential and commercial sectors, mostly for heating, in the industrial sector – sometimes industrials such as fertiliser producers use natural gas as raw material – and in the power sector. The power sector is by far the largest user of natural gas with around 40% of global gas demand as the fuel contributes to meeting incremental power demand and produces less CO2 than coal. Industrials use roughly 24% of total gas consumption and the residential/commercial sector 22%. Other uses include own use by the energy industry (10%) – for example by GTL plants and losses.

What is LNG?
LNG, or liquefied natural gas, is natural gas that has been liquefied for transport (very often by ship and sometimes by truck). Depending on its exact composition, natural gas becomes liquid at approximately -162°C at atmospheric pressure. This liquefied state enables the natural gas to be shrunk to 1/600th of its original volume. To be transported, natural gas is first liquefied in a LNG liquefaction plant. This requires all heavier hydrocarbons to be removed from the natural gas, which leaves only pure methane. Then it is transported in specialised LNG carriers. The largest LNG carrier, called Q-Max, can transport 264 000 m3 of LNG (or around 0.15 bcm). Finally LNG is re-gasified. In 2014, LNG trade accounted for 325 bcm, or 9% of global gas demand, up 1% from the year before.

Who are the largest producers and consumers of LNG? 
The largest producer of LNG is Qatar, which held a 31% market share in 2014. Qatar has seen a massive expansion of its capacity, up more than 63 bcm since early 2009 to reach 105 bcm. Indonesia, Malaysia, Australia and Algeria are also significant LNG exporters. Papua New Guinea began exporting in 2014, Russia and Yemen in 2009, Peru in 2010 and Angola in 2013. Australia, whose gas production is on track to increase by 230% from 2014 to 2020, is set to become by 2016 the second-largest LNG exporter behind Qatar, overtaking Malaysia. Queensland Curtis LNG, the first of seven LNG projects scheduled to start operations before 2020, began production at the very end of 2014, while the other six were at advanced stages of construction, with all seven representing more than 80 bcm of new capacity. Three new LNG projects, including Queensland Curtis, helped 2014 additional LNG capacity grow twice as much as during the previous three years.

What are unconventional sources of gas?
Unconventional sources of gas are trapped underground by impermeable rocks, such as coal, sandstone and shale. There are three types of unconventional gas: shale gas (found in shale deposits); coal bed methane, or CBM also known as coal seam gas (CSG) in Australia (extracted from coal beds); and, tight gas (trapped underground in impermeable rock formations).

How is unconventional gas produced?
While different techniques are applied, depending on the type of gas being extracted, one common method is hydraulic fracturing (also known as fracking): a well is drilled, and large volumes of water (mixed with some sand and chemicals) are injected underground under high pressure to create cracks in the rock which remain open. This frees the trapped gas allowing it to flow into the well bore so it can be produced. Another key technology is horizontal drilling which enables the well to penetrate significantly more rock in this gas bearing strata, increasing the chances of gas being able to flow into the well.

For how long has unconventional gas been produced?
In the United States, tight gas has been produced for more than four decades and coalbed methane for more than two decades. Production of shale gas in the United States began much more recently, and has rapidly increased from 2005 onwards. In 2014, shale gas represented just over half of US gas production – and 11% of world output.

If unconventional gas has been known about for so long, why the recent interest?
Technological advances over the last two decades, particularly concerning hydraulic fracturing, and soaring gas prices in the early 2000’s prompted drillers in the United States to pursue development of unconventional gas types more vigorously. The impressive growth in production in the United States over the last few years has actually led to a significant decline in gas prices, but output still remains robust and other countries have been prompted to explore whether they could enjoy similar results. Importing countries are keen to explore this, because if they are able to produce significant volumes of unconventional gas, they would have greater energy security and more energy independence – reducing a country’s reliance on costly energy imports. Alternatively some producers would be able to export more gas.

How much unconventional gas is currently produced?
As of 2013, all unconventional gas production made up an estimated 18% of global gas production. The majority comes from North America, with around 580 bcm produced in 2013, one-third of which is tight gas and just under half shale gas. Throughout the rest of the world, coalbed methane production is estimated at approximately 12 bcm and tight gas at 74 bcm. Shale gas output increased by a factor of 13 over the last decade, to reach just under one-half of total unconventional gas production in 2010. However, as of 2015, shale gas output was still concentrated in the United States. Unconventional natural gas is set to become an increasingly important part of global gas supply, accounting for more than 60% of the increase in total gas production over the period to 2040.

What impact has the US success in unconventional gas had on the global market?
As recently as 2008, it was widely viewed that import requirement for LNG in the United States was likely to increase over the coming decades. However, soaring unconventional gas production led to a sharp drop in import requirements and a sharp revision of expectations for the United States in the international gas trade. The recent slump in LNG imports in the United States has had a significant impact on global gas markets. Following the global economic crisis in 2008, there was a general drop in global gas demand. The United States suddenly had no need to buy LNG at a time when ample supplies, mostly from Qatar, were entering the market. This led to a “gas glut” – where there was more gas on the markets than was needed – and gas spot prices in the United States and in Europe consequently dropped. Since 2010, global demand has recovered substantially, but LNG imports in the United States have remained very low due to growth in cheap domestic gas production. As such, the United States is no longer an attractive LNG market. The United States and Canada are both now proceeding to export LNG from the United States.

Have countries other than the United States made much progress in their unconventional gas exploration efforts?
Canada already produces tight gas, coal bed methane (CBM) and small amounts of shale gas. Although years behind the United States, some countries have made notable strides forward in exploring their own unconventional gas sources. Australia has shown good CBM potential, which is already being produced in small quantities. But Australia’s future success most likely lies in projects that focus on producing LNG from CBM. China, India and Indonesia have also produced small amounts of unconventional gas and are aggressively looking at ways to increase their respective volumes, notably China which has very ambitious shale gas targets. Despite strong interest throughout Europe, there are areas of public concern – such as high population densities and issues surrounding the potentially damaging environmental impact – which are hampering progress. A few other countries, such as Argentina, Algeria and Mexico, seem also to have large shale gas potential.

What is the recipe for success with unconventional gas production?
To effectively replicate the success story of North America, four core factors must be addressed:

  • Geology: In order to identify potentially good areas to drill, access to high-quality geological data is essential
  • Companies: Companies involved in operations must have first-rate engineers, a sufficient number of available rigs, and significant experience of drilling
  • Costs: Operations depend highly on the quality of the gas field, leading to a wide range of costs within the United States. There are still many uncertainties on how expensive such production would be outside of North America
  • Country: Before undertaking such an exercise, a country must assess whether: a) there is an internal and external market for the gas; b) landowners and local communities will accept drilling; c) all environmental risks have been taken into account and addressed; d) the appropriate fiscal and regulatory frameworks are in place; e) there is an economical way to link the project to pipeline infrastructure already in place

Is unconventional gas production bad for the environment?
There are concerns about the environmental impact of unconventional gas production, notably in terms of land use, water use and the potential for contamination of drinking water, and methane and other air emissions. In May 2012, a WEO special report looked at the environmental impact of unconventional gas production, including analysis of the "Golden Rules" that are needed to support a potential "Golden Age of Gas". 

Are natural gas prices linked to oil?
There are different types of natural gas prices – wholesale prices (such as hub prices, border prices, city gate) and end-user prices which differ depending on the customer served (industrial, or household). Prices typically include the cost of gas supplies, transmission, distribution and storage costs, as well as retailer's margin and taxes. End-user prices and wholesale prices vary widely across regions. Some wholesale gas prices are linked to oil prices, through an indexation present in long-term supply contracts in Continental Europe and OECD Pacific, but this represents only one fifth of global gas demand.  Following the economic crisis in 2009, lower demand and availability of cheaper sources of gas (LNG), many long-term contracts have been renegotiated in Europe so that they include now a partial spot indexation. However, long-term import prices in Asia remain closely linked to oil prices and stand therefore at much higher levels than in Europe or North America. This is becoming an issue for many Asian countries which are trying to move away from oil indexation. Gas-to-gas competition (spot prices) can be found in North America, the United Kingdom and parts of Continental Europe and represents one third of global gas demand.  However, there is no such thing as a trading hub in Asia and it would take years to create one, as highlighted in the IEA special report Developing a Natural Gas Trading Hub in Asia. Prices in many other regions are often regulated: they can be set below costs, at cost of service, or be determined politically, reflecting perceived public needs. The IEA follows mostly the reported market prices in Europe, North America and the OECD Pacific region.

To what extent can natural gas contribute to meeting CO2 emissions reductions?
While natural gas (which is a lower-carbon fuel relative to other fossil fuels) contributes to lowering CO2 emissions by displacing coal or oil, an increased share of natural gas in the global energy mix is not sufficient on its own to put the world on a carbon emissions path consistent with an average global temperature rise of no more than 2°C. To achieve this target requires a greater shift to low-carbon energy sources, increased efficiency in energy usage, and new technologies, including carbon capture and storage.

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