Session 2: Gas demand growth beyond power generation
IEF-IGU Gas Ministerial
22nd November 2018 Past: Demand growth concentrated in power sector
Net change in gas consumption, by sector and region (2010-16)
BCM CIS decline driven 500 43 by energy sector own use and 132 district heating 400 327 300 277 -125 200
100
0 Power generation Inudstry Buildings Other1 Total
Africa Non-OECD Asia Middle East OECD Europe Central & South America OECD Asia CIS North America
1. Other Energy Sector: covers the use of energy by transformation industries and the energy losses in converting primary energy into a form that can be used in the final consuming sectors. It includes losses by gas works, petroleum refineries, coal and gas transformation and liquefaction. It also includes energy used in coal mines, in oil and gas extraction and in electricity and heat Source: IEA, BCG analysis 1 Future: High projected growth outside of power
Heat map – net additional gas consumption (2016-2040, bcm/yr)1
Regions Power Industry2 Buildings Other3 Tot al Non-OECD Asia-Oceania 227 240 84 68 619 (38%) Middle East 116 77 88 38 318 (20%) North America 20 27 13 120 180 (11%) Africa 82 29 39 20 169 (10%) Latin America 34 42 9 22 107 (7%) OECD Asia-Oceania -3 36 24 18 75 (5%) CIS 0 19 16 26 61 (4%) Europe 34 -4 3 6 39 (2%) Global Bunkers - - - 50 50 (3%) Total 510 (32%) 465 (29%) 275 (17%) 368 (23%) 1,619
Transportation included <0 0-25 25-50 50-75 75-100 100-150 >150
1. Chart represents net change in annual gas consumption between 2016 and 2040 2. Industry sector: includes fuel used within the manufacturing and construction industries. 3. Other Energy Sector: covers the use of energy by transformation industries and the energy losses in converting primary energy into a form that can be used in the final consuming sectors. It includes losses by gas works, petroleum refineries, coal and gas transformation and liquefaction. It also includes energy used in coal mines, in oil and gas extraction and in electricity and heat Source: IEA, WEO 2017, BCG analysis 2 What will it take? Four levers to achieve growth
Infrastructure New business Cost reduction Policy advocacy development models
• LNG cost • Localized pollution • Substantial capital • Flexible innovation regulations investment technologies • Carbon pricing • Sector-specific • Access to low • Downstream gas • Enablement of growth enablers cost debt mkt. development new gas resource • Reduction of • Innovative • Focus on gas development political barriers financing measures for cities
3 Cost: Gas remains uncompetitive vs. coal in Asia and Europe
Oil, Gas and Coal prices in major reference markets 2011-2017
North America Europe Asia $/MMBtu $/MMBtu $/MMBtu 24 24 24
18 18 18
12 12 12
6 6 6
0 0 0 2010 2012 2014 2016 2018 2010 2012 2014 2016 2018 2010 2012 2014 2016 2018
WTI US Coal1 Brent Eur. Coal2 Dubai Asia Coal3 HH NBP NEA Spot
1. US coal price is Central Appalachia price, 2. Rotterdam index, 3. Australia coal Source: World Bank, Bloomberg, EIA, BCG analysis 4 Policy: China demonstrates the impact of sector-specific policies
Multiple government policies supporting gas Consumption growth across sectors China consumption (BCM) Coal boiler conversations to gas 250 • Target conversation of 200k coal boiler units to 209 natural gas to meet local pollution targets 200
New residential connections • Target to increase penetration from 35% to 85%, 150 135 adding >120m new connections 100 Incentives for CNG/LNG for transport • Discounts provided on prices in gas price formula • Gas consumption of cars targeted to more than 50 double from 2014 to 2020 0 5 year plan target gas capacity 2011 2016 • Targeting 44GW of new gas-fired capacity Other Buildings Power generation Transport Industry Source: CEDIGAZ data (Terminals and Plants), IEA data (Natural gas balance), analyst reports, BCG analysis 5 Infrastructure: Limited development assistance available for gas to date
Coal – Public sector development Renewables - Public sector development finance finance 2016 total ($B) 2016 total ($B) 30 30
0.6 20.8 1.7 1.3 20 20 3.8 4.2
10 3.8 1.0 9.0 10 9.2 4.2
0 0 Chinese Japanese Korean Total Multi- Gov. NationalBilateral Climate SOEs Total institutions institutions institutions lateral DFIs DFIs Funds DFIs
VS. Total development funding for gas of <$1.0 B
Source: NRDC, IRENA, Climate Policy Initiative, BCG analysis 6 New business models: Focus on gas for cities
Gas provides specific advantages for cities...... But requires multiple enablers
Air pollution: nearly zero sulphur Infrastructure investment of $34- dioxide, nitrogen oxide, and no 1 55bn/yr in gas midstream particulate matter emissions Scaling up consumption over time, GHG emissions: 40% less than coal 2 starting with large scale anchor and 20% less than oil customers in industry and power generation Heat intensity: Most heat intensive Technological innovation to expand gas (and thus highest efficiency) fuel 3 applications and enable sustainability source goals Scalability: Ease of adding Government policies enabling customers to existing networks 4 consumption, particularly for reducing once infrastructure is developed air pollution
Source: BCG analysis 7 Questions for discussion
1 Opportunities for greater gas demand growth in industry, buildings, and transport sectors • What sectors provide the greatest opportunity for gas demand growth? • What will it take to accelerate gas demand growth in Asia? • How can industry make the case for gas in non-power sectors?
2 Key barriers to adoption of gas outside the power sector • How can gas become more cost competitive? • How can governments and industry facilitate gas infrastructure investment outside of power? • What is needed to convince businesses and consumers to switch to gas?
3 Lessons learned from examples of fuel switching • What are effective means of advocating gas to governments and the public, outside the power sector? • Can the experience of Chinese coal boiler switching be replicated elsewhere? • What should the role of regulated prices and/or government incentives (standards, fiscal measures) be for facilitating fuel switching?
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