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Page added on October 13, 2017

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Just How Big Is Oil’s Invisible Friend?

Consumption

The world’s oil majors, beset by intimations of demand for their favorite product leveling off, seek comfort from an invisible friend.

Compared to oil and coal, natural gas looks less fossilized. Long-term outlooks routinely show demand rising while it flattens for oil and falls for coal. This makes sense: Gas is versatile, useful both as a source of energy and a building block for chemicals; plus, when burned, it emits less carbon.

In an increasingly electrified world where regulations around pollution are tightening, gas should be a relative winner. Oil majors have adjusted accordingly:

Clear Difference
Natural gas has grown as a proportion of output for major oil companies over the past decade
Source: Bloomberg

However, their enthusiasm has, as so often, resulted in excess supply, especially of liquefied natural gas, expected to last through the early 2020s.

And the long-heralded “golden age” of natural gas isn’t a foregone conclusion.

In its latest long-term outlook, the Energy Information Administration cut projections for global gas consumption; the annual growth rate from 2020 to 2040 is now 1.7 percent, compared with 2.1 percent in last year’s outlook.

Those 40-odd basis points may not sound like much. But over time, they add up to a market in 2040 that would be smaller than previously forecast, to the tune of 72 billion cubic feet a day. That’s like the entire U.S. market, the world’s biggest, vanishing.

Vanishing Into Thin Air
The Department of Energy’s long-term projections for gas demand growth were cut across virtually all regions this year, especially for Asia and Africa
Source: Energy Information Administration
Source: Projected cumulative growth in natural gas consumption, 2020 to 2040.

As with so much else in 21st-century energy, Asia is the decisive battleground for gas. The region accounts for half the expected growth in demand between 2020 and 2040; just China and India together account for 29 percent.

Yet, as you can see, judging the growth rates for these relatively new markets is tricky. And this matters when Asia’s gas supply comes overwhelmingly from multi-billion-dollar, multi-decade LNG and pipeline projects.

Alex Dewar of Boston Consulting Group’s Center for Energy Impact thinks growth of even 1.6 percent a year over the long term could require some heroic assumptions.

Take the critical Chinese market. As elsewhere, this country’s power sector is a critical source of demand; and this is projected to rise from about 3 billion cubic feet a day in 2015 to almost 15 billion cubic feet a day in 2040. Already, that implies average annual growth at about double the pace recorded between 2010 and 2015, in terms of absolute volume of gas.

Furthermore, under Dewar’s assumptions, it implies China building 8.7 gigawatts of gas-fired generation capacity every year through 2040, versus the 5 gigawatts built annually between 2010 and 2015. Even using more-generous assumptions of plants burning only 7,500 BTU per kilowatt-hour and running 40 percent of the time, China would need to be building 6.7 gigawatts each year to underpin that growth in natural gas demand. India’s rate of building would have to accelerate at an even faster pace.

The critical factor is price. Natural gas has always been priced relative to other fuels. It is very difficult to store and transport, and the huge upfront investments in pipelines and other infrastructure this necessitates have required long-term supply contracts. These have usually been priced relative to oil.

Even as the growing trade in competing LNG cargoes has helped to loosen contract terms, this fundamental characteristic of gas won’t disappear completely when it comes to generating electricity, where the fuel must compete with coal and, increasingly, renewable power.

Analysts at the World Energy Council considered this question in a recent report. They calculated the prices at which gas and coal would compete with renewable projects priced at between two and four cents per kilowatt-hour, in line with recent long-term power purchase contracts. The chart below recreates the results, showing the equivalent gas price at various renewable-power costs — and with a theoretical carbon price of $20 per tonne factored in, too:

Natural Rivals
All else equal, falling costs for renewable-power projects imply natural gas will have to be priced very competitively in key Asian markets to encourage demand
Source: World Energy Council
Note: Implied equivalent cost of natural gas to compete with renewable energy projects at various costs per kWh, both without a carbon cost and after backing out a carbon cost of $20 per tonne. Assumes natural gas-plant efficiency of 54 percent.

Even at the top end there, the implied competitive price for gas is only about $7 per million BTU, undercutting current spot prices of about $7 to $9 for Australian and Qatari LNG cargoes heading to Northeast Asia, and also U.S. cargoes, assuming a Nymex price of $3 plus tolls and shipping charges of $4 to $5.

Importantly, plants running on gas have the advantage of being able to respond to changes in power demand, while renewable projects cannot, so there are factors other than simple energy-equivalency to consider when it comes to these comparisons. Yet bulls shouldn’t rely on this argument alone — especially as, apart from renewable-technology costs, natural gas is also racing against falling battery-storage costs.

More importantly, gas could find itself squeezed between a combination of renewable power and coal. That isn’t exactly the future imagined by green enthusiasts, but coal proved to be remarkably resilient in several European countries between 2010 and 2014 — in part because carbon prices were on the floor and oil-linked gas prices in the region jumped.

Looking at China and India, while they have very good reasons to reduce coal consumption — urban pollution, chiefly — the pace at which this happens will be influenced by, among other things, the politics of employment (see this week’s announcement from the EPA for an example of how that works in another big energy-consuming country).

Realizing the “golden age” for gas will, therefore, depend to a large degree on policy and price. Carbon pricing or limits, while unhelpful in competing with renewable sources, would at least help natural gas muscle further into coal’s market share (as the oil majors are well aware already).

Ultimately, though, the main weapon in this battle is price, especially in those all-important Asian markets.

On that front, the current glut may actually be helpful. As BCG’s Dewar points out, low prices hurt sellers in the short term, but they also encourage potential buyers to build infrastructure like power plants and import terminals — facts on the ground that can underpin demand for decades to come. The shape of the mid-century global gas market may well get decided in the next five years.

bloomberg



38 Comments on "Just How Big Is Oil’s Invisible Friend?"

  1. Anonymous on Fri, 13th Oct 2017 12:46 pm 

    For the site admins:

    Are these repostings allowed by copyright? I would think the site is in routine violation.

    Just curious. What is the deal? Has this come up? What is the history?

    I figure you respond to takedowns, but even if no takedown, isn’t the whole practice of reposting entire articles illegal?

    [I don’t have a specific complaint and I enjoy the content. But that you get away with it, is a headscratcher.]

  2. Boat on Fri, 13th Oct 2017 2:49 pm 

    ape,

    Any law or legislation is only as good as the funding for enforcement. The internet is still the wild wild west.

  3. Boat on Fri, 13th Oct 2017 2:58 pm 

    Nat gas is in the driver’s seat for maybe 2-3 decades. It will take wind/solar at least that long to scale up for the massive demand from an exploding EV market and filling in for coals demise.

  4. Davy on Fri, 13th Oct 2017 3:23 pm 

    Sounds romantic boat

  5. rockman on Fri, 13th Oct 2017 4:22 pm 

    Very simply predictions of NG production and consumption in 2040 can be made by any fool. And it often done these days despite no data supporting the credibility of such protections. If nothing else the volatility of every petroleum metric over the last 23 years should be a very good clue to the foolishness of projecting any such metric over the next 23 years.

    But folks get paid to do it so they have to write something. LOL.

  6. Anonymouse1 on Fri, 13th Oct 2017 5:13 pm 

    Well, we don’t have to worry about fools peaking anytime soon around here, or in the oil shilling business either, isnt that right narrativeman, boatietard?

  7. Boat on Fri, 13th Oct 2017 9:50 pm 

    amous,

    Peak oil because of depletion is never going to happen. Get over it. When Climate change kills around 80 million per year we will be at peak population/
    peak fools.

  8. rockman on Fri, 13th Oct 2017 11:48 pm 

    Boat – The only thing sadder then a sudden massive die off will that those premature deaths, should they occur, will be likely be concentrated in groups that consume little fossil fuels.

  9. makati1 on Sat, 14th Oct 2017 12:00 am 

    Please explain that comment, Rockman? I don’t follow the logic.

  10. Anonymouse1 on Sat, 14th Oct 2017 12:50 am 

    Narrativeman wont bother to explain his ‘logic’, mak, but i can do it for him.

    Fossil fuels, are solely responsible for keeping all those groups that consume little FF alive. IE charity, handouts, food aid, etc etc.

    Further unstated in narrativemens implication, is once FF start to be noticeably constrained, the ‘have’s’, that is to say, narrativeman and co, will have no option(or problem), throwing the low FF group under the bus. That is to say, they can eat grass for all he cares, as the ‘haves’ will go any lengths to ensure whatever resources remain, wont be going to anyone but the empire.

    In case it wasn’t obvious enough by now, ‘Low fossil fuel consuming group’ is narrativemans code for ‘dirt poor and powerless’. As in too powerless to stop the empire narrativeman serves so dutifully, from simply taking what resource they happen to have from them.

    There is one last implication also nested within narrativemans ‘logic’. It is that the ‘Low’ groups, have zero, or little self-reliance and are destined to simply starve as the empire withdraws what little charity and scraps they do provide currently.

    And, that, is narrativeman’s logic, summarized. Definitely a hard-core social darwinist, even if he doesn’t understand the term or its origins.

  11. makati1 on Sat, 14th Oct 2017 1:07 am 

    Thanks Anon, now it makes sense. But, what if those poor don’t need oil to survive? Here in the Ps, most electric is from coal, NG and other energy sources, including geothermal, wind and hydro. Some of my farm neighbors don’t even have electric. They don’t own anything requiring fuel. Food is local. They may notice the change, but they will adapt. After all, it doesn’t get cold here. Homes can be made from local materials like they have been doing for thousands of years. The city folk (mostly young people) will just move out to the countryside with their extended families as I will be doing soon.

  12. Dredd on Sat, 14th Oct 2017 5:58 am 

    “The world’s oil majors … seek comfort from an invisible friend.”

    Ghosts aplenty eh (NASA Busts The Ghost) ?

  13. Davy on Sat, 14th Oct 2017 6:26 am 

    mad cat, oil is generally used for transport. Your dirt poor P’s people you are defending need oil directly and indirectly. Food and goods have to be transported. Your P’s people need to transport themselves and use transport in the economic activity. You P’s people have a P’s economy that uses oil to import and export goods and services. You argument does not hold up.

  14. makati1 on Sat, 14th Oct 2017 7:33 am 

    And the Ps has it’s own oil, Davy. Enough to power necessary trucking and shipping. The trains are electric. Many of the buses are also electric. NG is available at all gas stations here for the vehicles that use it. The end of oil will not be in a day ot two. It will be a gradual decline over years. Plenty of time for things to adjust here.

    The cities will be somewhat hampered, but only until most have left them for the countryside and their extended families. It is the banks that will be stuck with hundreds of empty towers with no occupants/payments. The empty malls with no tenants. Etc. The Ps is not the US. Cars are not a necessity here. They are still a luxury. But you would not know that, living in a country that is tied to the automobile and petroleum.

  15. Davy on Sat, 14th Oct 2017 8:22 am 

    “The cities will be somewhat hampered, but only until most have left them for the countryside and their extended families.”

    Mad kat, the country side is already full. There will be no successful emigration to the countryside without a mass disruption. You are living in a delusional fantasy world.

  16. rockman on Sat, 14th Oct 2017 4:31 pm 

    Mak – You should be able to figure it out on your own. First, let’s use big numbers. Do you think 50% of the global population consume 50% of the oil/NG? If no then what % consumes the majority of oil/NG? Second, do you think 50% of of the global population has good nutrition, medical care and is in good overall health? If not then what % fit that characterization?

    Boat didn’t describe exactly what will bring about such a significant and long term reduction in the global population. But do you think it would be equally distributed between the more affluent portion of the population (those consuming a disproportionate large % of oil/NG and with the best access to food and health care) then those at the other end of the spectrum? IOW who would better be able to protect themselves from climate change, the general “killer” Boat offers?

    So if you see the pain distributed equally then you view that scenario very differently then I do. So, do you?

  17. makati1 on Sat, 14th Oct 2017 6:22 pm 

    Rockman, yes, the “affluent” countries are the least able to adapt to a 3rd world lifestyle. If you deny that, there is no hope for you. Take away ALL of the US oil imports and see what happens. Total collapse and chaos as 330 million people try to survive. Not to mention Europe or Japan or the rest of the Western wannabees.

    Whereas, the 3rd world has experience and knows how to live on less. Will there be deaths? Yes. But, they will not all be in the 3rd world. I think the US will lose 50% or more the first year and maybe that is a very low number, not the max. Some articles have said 90% is possible. I guess we shall see. Time is running out for the US. Tic Tic …

  18. makati1 on Sat, 14th Oct 2017 6:27 pm 

    Davy, more of your delusional bullshit. Full? Most of the countryside is empty. The square mile around the farm has less than 100 people living there. That is over populated compared to most of the country. Once you get outside the cities, it quickly goes to unused land. Even the jungle grows food in abundance. Coconuts, bananas, bamboo, etc.

    But how would you know. You have never been here. More of your fantasy Philippine ideas, not reality.

  19. Davy on Sat, 14th Oct 2017 6:34 pm 

    “Most of the countryside is empty”
    http://tinyurl.com/yc8ehp9q

    Yea, mad kat, where the land is not fit for agriculture sure it is empty. Otherwise the place is full up. You are not going to mover a megaregion of people to the countryside. Not going to happen. There are 53MIL people on the Island of Luzon. Where are you hiding all those people mad kat? Get a grip and reality test. You have been too long cooped up in the condo

  20. Davy on Sat, 14th Oct 2017 6:46 pm 

    “Whereas, the 3rd world has experience and knows how to live on less.”

    Mad kat, the worst overshoot is in the 3rd world. They will have the biggest die down. They may live with less but they can’t live on nothing and that is what is coming. Mad kat, it is coming to you because you moved there. Get ready, are you prepared for it?

  21. makati1 on Sat, 14th Oct 2017 7:05 pm 

    Davy, again you fantasize a Ps that doesn’t exist because you just want to argue a point you have no experience or info to back up.

    That map does NOT tell you anything about the land conditions or use, only the average population per Sq.Km. AND, it is only a part of the Ps, not the whole 7,000+ islands. I could get a map of NYC and surrounding area and point out an even worse situation. Neither would be even close to reality.

    No, Davy. Overshoot is the US living on 5+ times the resources it should have. When they vanish (and it will when the SHTF) it is the US that will be in a world of hurt. But you refuse to see or acknowledge that fact. So be it. Denial is rampant in America.

  22. Davy on Sat, 14th Oct 2017 7:12 pm 

    “That map does NOT tell you anything about the land conditions or use, only the average population per Sq.Km. AND, it is only a part of the Ps, not the whole 7,000+ islands.”

    Mad kat, come on, it shows where you live and brag about, Luzon. I could care less about the other 7000 islands. I am showing overpopulation are you trying to deny that?

  23. makati1 on Sat, 14th Oct 2017 7:25 pm 

    No, it shows population not livability. But your thick head will not consider anything but your need to dominate. To always be right. Your comment says that NYC is the problem, IF you ignore the rest of the US. Give it up, loser. Your arguments are not valid. Just bullshit.

  24. Davy on Sat, 14th Oct 2017 7:29 pm 

    Mad kat, population influence livability. Get that through your thick head. You do realize Luzon is mountainous so the overpopulation is even more severe than the maps show. How did NYC enter into this comment old man? Is your mind drifting? Did you get up too early and not have enough coffee?

  25. makati1 on Sat, 14th Oct 2017 7:51 pm 

    Davy, you keep comparing apple and oranges, but you don’t see it. Again, you don’t live here. You do not even live in a climate with multiple growing seasons. How would you know what is productive and what is not in that climate? Answer: Nothing.

    You cannot get past your numbers block. Typical American brainwashing. We are the best! LMAO

    About 60% of Americans live in cities or burbs. Does than mean that the rest of the US is wasteland? Is your farm wasteland? IF/WHEN they leave the cities after the SHTF, will they all die? (Well yes they probably will, but that is another topic.) Look at your own countries problems, not mine.

  26. Davy on Sat, 14th Oct 2017 8:00 pm 

    Keep trying mad kat to skirt around the reality of the numbers. Lol, you are stubborn and stupid:

  27. deadlykillerbeaz on Sun, 15th Oct 2017 4:29 am 

    If you look at the numbers involving shipments of coal in 2017, those numbers are on the upswing and coal shipments are a larger number than 2016.

    Coal consumption has increased over the past year in the US.

    In 1865, Stanley Jevons (one of the most recognized 19th century economists) predicted that England would run out of coal by 1900, and that England’s factories would grind to a standstill.

    There 149,000+ days of coal left in the ground.

    149,000/365=408.2

    408 years from now, all of the coal will be gone.

    So the year 2425 will be the demise of coal.

    525 years later than predicted.

    Here’s more:

    In 1939 the US Department of the Interior said that American oil supplies would last only another 13 years.

    http://www.powerlineblog.com/archives/2013/01/great-moments-in-failed-predictions.php

    In 1952, all of the oil was supposed to be gone.

    And Paul Erlich predicted millions of Americans would die of starvation in the 1980s!

    Another stupid idiot who thinks he’s never wrong. lol

    Pigs will fly before coal’s long awaited demise ever happens.

  28. Davy on Sun, 15th Oct 2017 5:41 am 

    “There 149,000+ days of coal left in the ground. 149,000/365=408.2 408 years from now, all of the coal will be gone.”

    Those numbers don’t represent economic coal. The reason coal is dying these days is cheap gas and the decline of economic coal. The same is happening in China to some extent. We want to think we are doing something for climate change but we are really just riding a wave of economic happenings and acting like we are making headway on climate change by effort. What a joke.

  29. rockman on Mon, 16th Oct 2017 4:46 pm 

    Mak – “Rockman, yes, the “affluent” countries are the least able to adapt to a 3rd world lifestyle. If you deny that, there is no hope for you. Take away ALL of the US oil imports and see what happens.” So you’re a believer in “the meek shall inherit the earth”, eh? LOL. So the world’s poor aren’t being ignored and f*cked over by the power structure, eh? And resources, especially energy, become more scarce (and more expensive)/the poor won’t get f*cked over even worse? If the ” “affluent” countries decline to 3rd world standards where exactly do you see today’s poor end up? Like the large portion of the global population that’s being fed by US grain exports.

    So if the US degrades to a “3rd world” level we’ll keep shipping those exports? And if it gets that bad in a country with one of the most powerful militaries we won’t take what we need frtom the weak? Aren’t you the one who constantly berates the US for our serlfishness? So such a country wouldn’t forcefully take what it needs?

    You seem to have a view of the the US in the future that differs greatly from how you view us today.

  30. Davy on Mon, 16th Oct 2017 5:14 pm 

    Rock, mad kat is another delusional living in a cesspool of lies. No wonder clogged mind and mad kat are bud spuds these days. It’s a bromance in hell. Disgusting!

  31. Boat on Mon, 16th Oct 2017 5:46 pm 

    davy,

    We want to think we are doing something for climate change but we are really just riding a wave of economic happenings and acting like we are making headway on climate change by effort. What a joke.

    Of course “we are really just riding a wave of economic happenings”
    You call the world’s response to climate change a joke, others, to little to late. I see big changes coming fast, positive changes. But being negative is just you. I like being positive.

  32. Davy on Mon, 16th Oct 2017 5:56 pm 

    I am positive boat. I said we may have a decade or two. What is negative about that? I am not the type to be positive because we are told that is what successful people do. I am positive or negative based upon what is determinable by reasonable observation and study.

  33. makati1 on Mon, 16th Oct 2017 6:36 pm 

    Rockman, your income and career depends on your believing what you posted. You want to believe what you posted because any other view is going to end both.

    Have you noticed where most of the “poor” live? Hint: NOT in northern climates requiring a lot of energy to survive. Most can live without A/C, heating systems and, GULP, carz! Less food will just mean less obesity in 3rd world countries. And, yes, populations will shrink, but not like in the US.

    BTW: Yes, the world can live without any US grains. They will just stop feeding it to animals. And, Russia is fast overtaking America in grain exports. The US Midwest is a victim of climate change and US food supplies are becoming more and more precarious. Ask Cali or Florida. Maybe in the not-to-distant future, the US will be importing Russian grain? That is, IF they will sell it to you and you have gold to pay for it. lol

  34. Davy on Mon, 16th Oct 2017 6:54 pm 

    Mad kat, it is obvious you know little about farming. The fantasy farm is case in point. As far as the economics of food you are even more deficient. Keep trying

  35. Anonymous on Mon, 16th Oct 2017 7:38 pm 

    There are huge dynamics going on (and interesting ones) in natural gas. But the comments here totally lose the thread.

    Look at the spot price of LNG and how it has dropped from $15 to 8.50 (winter) and $6 (summer) in Asia. Lower elsewhere. This is an AMAZING development. And you all are totally not discussing it, analyzing why it happened, implications for majors, etc. But you all sit around and bitch at each other and don’t even talk about the big stories.

    https://www.cnbc.com/2017/10/05/reuters-america-global-lng-asian-spot-lng-edges-to-highest-level-since-january-ahead-of-winter.html

  36. Davy on Mon, 16th Oct 2017 8:03 pm 

    Nony, we have some people making this board a political statement greatly lowering the quality of the discussions. Thanks for bringing it up. It is important.

  37. makati1 on Mon, 16th Oct 2017 8:18 pm 

    Delusional Davy, You have no idea what I know. You just want to feel superior and it is failing.

    I understand more than you ever will about how ecology works and how the financial system is failing all around the world. My future does not depend on the dollar remaining strong. Yours does. I am and will continue to enjoy life here. You, not so much.

  38. Boat on Mon, 16th Oct 2017 10:28 pm 

    Anonymous on Mon, 16th Oct 2017 7:38 pm

    “There are huge dynamics going on (and interesting ones) in natural gas. But the comments here totally lose the thread.”

    No shyt Sherlock. The nat gas dynamic in the US took off with fracking and is still going strong. Nat gas energy prices being much lower for years is the main reason the world didn’t implode when oil was high. Large nat gas finds have been found on a regular basis over the last 5 years along with the capacity to ship and recieve it at ports.
    Keep reading and catch up.
    Read the new drilling productivity report yet?

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