An Introduction to Natural Gas Growing Importance, Current Challenges

Natural Gas Series | October 2015 An introduction to natural gas Growing importance, current challenges. An introduction to natural gas Growing importance, current challenges.

Natural gas has become a key resource for global energy needs and is abundant, versatile and clean burning. It is used in power generation, for industrial applications, buildings, and transportation. Though historically it has been extracted through conventional means, unconventional extraction processes play a part in regions such as North America. Natural gas is being traded globally, facilitated by investments in transport technology and increased global demand. Future demand for natural gas is likely to grow, especially for power generation, where it can be used to replace coal power and to fill power gaps created by intermittent renewable energy sources.

The content of this summary is based upon the Introduction to Natural Gas FactBook. For the complete FactBook and other FactBooks by the A.T. Kearney Energy Transition Institute, please visit www.enery-transition-institute.com.

2 Summary FactBook | Natural Gas Series | October 2015 Permission is hereby granted to reproduce and distribute copies of this work for personal or nonprofit educational purposes. Any copy or extract has to refer to the copyright of the A.T. Kearney Energy Transition Institute. Having long been overlooked as an energy source, natural gas has become a crucial part of the energy mix in the past two decades

Interest in natural gas has been bolstered Natural gas was, for an extended time, an unwanted Natural gas composition by-product of oil production. Without economic methods is highly variable and of bringing it to market, gas was mostly flared or released depends on the resource’s to the atmosphere. However, in recent decades, its location. abundance and low carbon content compared with other fossil fuels have considerably bolstered interest in natural gas. Natural gas is not solely methane Natural gas is composed of a mixture of hydrocarbon components, including methane but also ethane, propane, Natural gas consists of hydrocarbon components… …and of non-hydrocarbon contaminates butane and pentane – commonly known as natural gas liquids (NGLs) – and of impurities such as carbon

dioxide (CO2), hydrogen sulfide (H2S), water and nitrogen. The composition is highly variable and depends on the (Flame size indicates typical relative Helium Water Nitrogen Hydrogen Carbon resource’s location. In some fields contaminants, especially concentrations of hydrocarbon components) vapor sulphide dioxide those that characterize sour gas (CO2 or H2S), represent a high proportion of the natural gas mixture, making exploitation harder and more expensive. Sometimes NGLs Methane 70-98% account for a significant share of natural gas; a mix rich in NGLs, known as wet gas. In 2013, wet gas yielded 9 million barrels of oil equivalent a day, contributing 10% to global Ethane 1-10% liquid hydrocarbon supply. In all situations, natural gas must be processed to remove NGLs and contaminants. Propane <5%

Butane <2%

Pentane (Trace)

Also referred to as natural gas liquids or NGLs

3 Summary FactBook | Natural Gas Series | October 2015 Permission is hereby granted to reproduce and distribute copies of this work for personal or nonprofit educational purposes. Any copy or extract has to refer to the copyright of the A.T. Kearney Energy Transition Institute. Figure 1: Natural gas development timeline Abundance and low carbon content compared with other fossil fuels have considerably bolstered interest in natural gas

1812 1885 1936 1970s 2000s First gas company Bunsen burner invented First industrial gas First combined-cycle Major development founded in London. in Germany. First ame safe turbine developed power plants with programs for compressed enough for cooking and in Switzerland a power output natural gas vehicles heating applications. independently from around 200 MW in Iran. jet engine. developed in U.S.

1785 1800 1850 1900 1950 2000 2014

NCNENTINAL GA MANFACTE GA CNENTINAL GA

1785 1821 1872 1915 1959 1995 First commercial use First well speci cally intended First long-distance natural First use of depleted Methane Pioneer Hydraulic fracturing and of manufactured gas1 to obtain natural gas drilled in gas pipeline in the U.S. reservoirs for natural shipped the rst cargo horizontal drilling led to fuel for lighting in Fredonia, New York. completed in Pennsylvania. gas storage in the U.S. of LNG from the U.S. successful exploitation of the UK. to the U.K. shale gas in Barnett, Texas.

1951 1992 First production of natural World’s largest gas eld, gas from coal beds in the UK. South Pars/North Field fully delineated across the Iran Qatar border.

1947 Hydraulic fracturing rst used in U.S.

Source:Sour c UKERCe: UKE RC(2012), (2012 “The), “T developmenthe developm ofen thet o fCCGT the C andCG Tthe and ‘dash the for‘da gas‘sh f oinr thegas U.K.‘ in t powerhe U.K industry. power (1987-2000)”;industry (198 7-EIA2000 (2010),)”; E I“NaturalA (2010 )Gas, “N aTimeline”;tural Gas GE Tim (2013),eline” ;“The GE ( 2Age013 of), Gas & the Power of Networks” “The Age of Gas & the Power of Networks” 4 Summary FactBook | Natural Gas Series | October 2015 Permission is hereby granted to reproduce and distribute copies of this work for personal or nonprofit educational purposes. Any copy or extract has to refer to the copyright of the A.T. Kearney Energy Transition Institute. Natural gas is a versatile energy carrier Nonetheless, research, development and demonstration Natural gas is an energy source that can be used as efforts are under way with the aim of: expanding the In 2013, wet gas yielded gaseous fuel, but also in non-gaseous forms – for instance, uses of natural gas, especially in transport; increasing the 9 million barrels of oil as electricity after conversion in a turbine or as a liquid after available gas resource (for example, by investigating the equivalent a day, contributing conversion in a gas-to-liquids plant. Furthermore, natural potential of methane hydrates and unlocking gas resources 10% to global liquid gas is not the only primary source of methane. Methane that are currently non-economic to exploit); and minimizing hydrocarbon supply can also be produced by gasifying coal – as synthetic natural methane’s environmental footprint (e.g. by developing gas; from biomass and waste – as biogas; and through carbon, capture and storage operations, reducing methane power-to-gas conversion, from renewables and nuclear emissions and enhancing water treatment). energy. The latter two categories are seen as potential levers for reducing the carbon footprint of natural gas even Figure 2. The natural gas value chain further. Thanks to its versatility, natural gas plays a major role in all end-use sectors, except for transport. Natural gas handling is challenging Exploration & Processing, transportation, storage & distribution End use The main drawbacks of natural gas relative to other production hydrocarbon fuels are its low volumetric energy density and gaseous nature, which makes it harder to handle than solid or liquid fuels. In order to be transported, natural gas needs Pipeline to be conditioned in some way – either by compression or Electricity Generation by liquefaction. This increases shipping costs and results in limited fungibility. The global-warming potential of its main constituent, methane, presents another problem. Processing Pipeline transport Gas storage Similar to CO , methane is a potent greenhouse gas. (optional) 2 Residential or Commercial However, an equivalent quantity of methane emitted into the atmosphere impacts climate change 84 and 28 times more over 20 and 100 year horizons than CO , respectively. 2 Pipeline distribution As a consequence, methane emissions from natural gas LNG systems, if significant and not mitigated, could negate the climate benefit of natural gas compared with other fuels. Exploration Industry and production Natural gas systems rely on a complex value chain The technological landscape that makes up the natural gas Liquefaction & Transportation Regasi cation ecosystem is largely mature, although a few technologies processing are still in the “valley of death” of investment, when Transport capital requirements and risks are difficult to overcome.

5 Summary FactBook | Natural Gas Series | October 2015 Permission is hereby granted to reproduce and distribute copies of this work for personal or nonprofit educational purposes. Any copy or extract has to refer to the copyright of the A.T. Kearney Energy Transition Institute. Figure 3. Technology maturity curve

Floating lique ed natural gas (FLNG) Gas for rail & maritime transport Upstream Marine compressed natural gas Gas-to-liquids (large scale) Midstream Gas smart grids End-use

Gas-to-liquids (small scale) Floating regasi cation & storage unit (FSRU)

Airplane gas turbine Coalbed methane production

Capital equirements x Technology isk Capital equirements x Technology Methane hydrates Hydraulic fracturing & horizontal drilling Lique ed natural gas (LNG) Combined-cycle gas turbine

Open-cycle gas turbine Gas boilers

esearch evelopment emonstration eployment Mature Technology Time

Note: Investment valley of death refers to two critical stages: the early demonstration stage, in which capital required tends to outstrip the resources of a typical lab and where the high technology risk deters some private-sector investors; and the early deployment stage, in which high investment requirements and further risk taking are needed to push the project from demonstration to deployment. Note: Investment valley of death refers to two critical stages: the early demonstration stage, in which capital required tends to outstrip the resources of a typical lab and where the high technology risk deters some private-sector investors; and the early Sourcdeploymente: SBC E stage,nerg iny whichInstitu highte investmentanalysis requirements and further risk taking are needed to push the project from demonstration to deployment. Source: A.T. Kearney Energy Transition Institute analysis

6 Summary FactBook | Natural Gas Series | October 2015 Permission is hereby granted to reproduce and distribute copies of this work for personal or nonprofit educational purposes. Any copy or extract has to refer to the copyright of the A.T. Kearney Energy Transition Institute. Natural gas resources are sizeable and relatively widespread thanks to the development of unconventional reservoirs

Natural gas resources are classified according to the properties of the reservoir in which they are trapped Reserves would last around 58 Resources are referred to as conventional when accumulated years, based on OPEC figures in a reservoir whose permeability characteristics permit for gas consumption in 2013 natural gas to flow readily into a wellbore; and as of 3.5 tcm unconventional when buoyancy forces are insufficient and intervention is required to make the gas flow. Conventional reservoirs are further broken down in to non-associated for gas found in isolation and associated for gas dissolved in oil. There are four main types of unconventional reservoir 1 Unconventional gas reservoirs include tight, shale, Figure 4: Natural gas 3P reserves – breakdown by type of reservoir and by region coalbed and gas hydrates. Tight and shale accumulations bcm, as of January 2012 refer to low-permeability formations. However, unlike in tight reservoirs, gas in shale rocks has remained in the North America Europe, Russia and Central Asia • Conventional gas • Shale gas rock where it formed, making exploration and production • Tight gas more difficult. Coalbed methane (CBM) is generated during • Coalbed methane • 57% • 98.2% . Russia 31,671 the formation of coal and is contained to varying degrees • 26% . USA 19,856 • 1.5% . Norway 2,673 within all coal microstructures. The presence of this gas • 13% . Canada 4,696 • 0.2% . Other FSU2 9,506 2 is well known from underground coal mining, where it • 5% . Mexico 956 • 0.1% . Other Non FSU 4,489 Total 25,508 Total 48,338 presents a serious safety risk. It is called coal-seam methane in Australia, where it is an important resource. Africa Middle East Asia-Paci c However, producing from CBM wells can be difficult because of the low permeability of most coal seams and • 83% the associated production of large volumes of water. • 99.3% • 10% The fourth type, methane hydrates, is promising but still South America • 98.7% • 0.6% • 5% • 1.2% • 0.1% • 2% in the development phase. • 97.9% . Brazil 2,719 • 1.6% . Venezuela 1,813 • 0.5% . Other 2,563 Total 7,095 . Algeria 3,406 . Iran 20,036 . Australia 8,405 . Nigeria 1,630 . Qatar 13,126 . China 5,559 . Egypt 1,344 . Saudi Arabia 8,684 . Indonesia 3,025 . Other 8,464 . Other 7,873 . Other 7,266 Total 14,844 Total 49,719 Total 24,255

Note:Not e: 1 3P1 3 reserves,P reserves, asas extractedextracted fr ofromm Ry Rystadstad data databasebase (sum (sumof P9 0of, P P90,50, P mP50,ean). Pmean). They correspond They correspond to the sum of to proved, the sum probable, of proved, and possible probable, reserves and .possible reserves.For more For more information on the definition of reserves, please refer to the Society of Petroleum Engineers website. informationNote that d onata thevary definition considerab ofly, dreserves,epending opleasen the s oreferurce atond the the Societydefinition of of Petroleumreserves us eEngineersd; 2 FSU s tawebsite.nds for F orNote mer Sthatoviet data Uni ovaryn. considerably, depending on the source Sourcande: R ythestad definition database Reofs reservesource Bas eused;d App r a2i sFSUal, w hstandsich inclu fordes Former all know Sovietn resou rUnion.Source:ces (accessed A priA.T.l 20 Kearney14) Energy Transition Institute analysis Source: Rystad database Resource Based Appraisal, which includes all known resources (accessed April 2014)

7 Summary FactBook | Natural Gas Series | October 2015 Permission is hereby granted to reproduce and distribute copies of this work for personal or nonprofit educational purposes. Any copy or extract has to refer to the copyright of the A.T. Kearney Energy Transition Institute. Technology has played a crucial role in the development of output from unconventional accumulations grew faster unconventional reservoirs than conventional production in 2013, reaching 0.6 tcm. Production from shale In general, unconventional reservoirs tend to yield lower Production from shale reservoirs in the U.S. has been the reservoirs in the U.S. has been recovery rates than conventional reservoirs, and usually main driver of growth and now represents 43% of global the main driver of growth and require more technology. Two technologies have been unconventional gas production. Going forward, natural gas now represents 43% of global instrumental in exploiting unconventional resources. production is expected to continue to increase, driven by unconventional gas production Hydraulic fracturing, which involves creating cracks in unconventional resources and new conventional resources the rock through which the gas can flow to the wells; (associated and non-associated gas). and horizontal drilling, which enables wells to penetrate a greater length of the reservoir than is possible with vertical wells, thereby increasing contact with the production zone. Figure 5: Natural gas marketed production – breakdown by reservoir type and region Natural gas is abundant and geographically widespread bcm / Y, 2013 Taken together, natural gas resources are abundant. Depending on data sources and the definition used for North America Europe, Russia and Central Asia • Conventional gas • Shale gas reserves, reserves amount to around 200 trillion cubic • Tight gas meters (tcm) and technically recoverable resources amount • Coalbed methane to up to 855 tcm. Reserves would, therefore, last around • 43% . Russia 662 58 years, based on a figure for gas consumption in 2013 • 32% . USA 640 99.5% . Norway 122 • 1 • 17% . Canada 136 0.4% . Other Non FSU 83 of 3.5 tcm. Technically recoverable resources, meanwhile, • 1 • 8% . Mexico 43 • 0.1% . Other FSU 56 would last over 200 years. While abundant, the largest Total 822 Total 1153 conventional gas resources are concentrated in a small number of countries. In the 2000s, it was thought that Africa Middle East Asia-Paci c Russia, Iran and Qatar owned more than 70% of known conventional gas resources. However, unconventional • 92% resources are much more widespread and recent South America • 99.5% • 99.9% • 6% discoveries of conventional reservoirs in East Africa and . Argentina 43 • 0.5% • 0.1% • 2% 98% the Mediterranean Sea have opened up new gas frontiers, • . Trinidad & Tobago 41 . Qatar 156 . China 104 • 2% . Other 91 reducing the concentration of natural gas reserves. . Algeria 87 . Iran 134 . Indonesia 66 Total 175 . Egypt 59 . Saudi Arabia 85 . Australia 59 Natural gas production should keep increasing . Nigeria 43 . UAE2 46 . Malaysia 53 . Other 35 . Other 80 . Other 195 According to the Organization of the Petroleum Exporting Total 225 Total 500 Total 477 Countries, natural gas production reached 3.5 tcm in 2013, led by North America, Russia, and the Middle East; of this, 83% came from conventional reservoirs. However, while Note: 1 FSU stands for Former Soviet Union; 2 UAE for United Arab Emirates. conventional reservoirs continue to dominate production, Note: Sou1 r cFSUe:Ry standsstad da taforba Formerse (acce sSovietsed Apri Union;l 2014 )2; OUAEPEC for(20 United14), “An Arabnual SEmirates.tatistical Bulletin” Source: Rystad database (accessed April 2014); OPEC (2014), “Annual Statistical Bulletin”

8 Summary FactBook | Natural Gas Series | October 2015 Permission is hereby granted to reproduce and distribute copies of this work for personal or nonprofit educational purposes. Any copy or extract has to refer to the copyright of the A.T. Kearney Energy Transition Institute. Complex infrastructure is needed to get natural gas to end-users – Natural gas is now traded processing plants, transport & distribution grids, and storage units internationally, about 21% by pipelines and 10% via LNG Processing is an essential step Many gas fields are too small or remote to justify pipelines or Raw natural gas collected at the wellhead needs to be LNG investment processed to meet pipeline quality standards, to ensure In order to tap these resources, known as stranded safe and clean operations, and to extract valuable NGLs. gas, two alternative technologies are being considered: As of 2013, there are close to 2,000 gas-processing plants compressed natural gas and gas-to-liquids. The former is operating worldwide, with a global capacity of around already in use onshore, but its application offshore is still at operating worldwide and the technology being subject 7.6 billion cubic meter (bcm) per day. More than half of an early deployment phase. The latter is technically mature to the development of economically viable small-scale capacity is located in North America, but the Middle East but is still in its commercial infancy, with only four plants modular systems. and Asia, where utilization rates are much higher than in the U.S., are expected to take over as market drivers. Long-distance transport technologies have played an important Figure 6: Global gas trade volume role in developing natural gas trade bcm/y The low energy density of natural gas has long been an impediment to long-distance transportation, and most Compound Annual Growth ate: 7.5% natural gas is still consumed close to production centres. 4% 1.8% However, long-distance trade has increased steadily in 3,500 recent decades. Along with pipelines, which have been 9.7% in use since the 19th century, liquefied natural gas (LNG) 3,000 7.2% 10% is playing a growing role in long-distance shipping. About 8.1% 7.3% 21.1% 21% and 10% of all produced natural gas is now traded 22.1% 21% 2,500 5.8% 20.6% internationally via pipelines and LNG respectively. As a 5.1% 20.3% rule of thumb, the longer the shipping distance, the more 18.9% 2,000 18.2% economically attractive LNG tends to become compared with pipelines. Growth in the LNG trade has been made possible by the expansion of LNG infrastructure. With new 1,500 export and regasification facilities under construction, this 70.6% 68.9% 69.2% 1,000 72.4% 71.3% expansion is expected to continue. Meanwhile, floating 76.7% 75.3% liquefaction and regasification concepts have garnered attention as a way to reduce development time, increase 500 flexibility and lower capital costs. The first floating storage 0 and regasification units have already been commissioned. 2000 2002 2004 2006 2008 2010 2013 Four floating liquefaction projects have achieved a final investment decision. Lique ed natural gas Piped gas Domestic consumption Source: BP (2013), “BP Statistical World Energy Review 2013”; IGU (2013), “World LNG Report – 2014 Edition”; GE (2013), “The Age of Gas & the Power of Networks” Source: BP (2013), “BP Statistical World Energy Review 2013”; IGU (2013), “World LNG Report – 2014 Edition”; GE (2013), “The Age of Gas & the Power of Networks”

9 Summary FactBook | Natural Gas Series | October 2015 Permission is hereby granted to reproduce and distribute copies of this work for personal or nonprofit educational purposes. Any copy or extract has to refer to the copyright of the A.T. Kearney Energy Transition Institute. Even if the smart gas-grid concept is less recognized than its power counterpart, Natural gas markets are becoming more liquid and less indexed of installed pipelines. Ensuring safety is the main challenge natural gas grids are to oil prices faced by distribution-grid operators. Even if the smart becoming smarter and more Improvements in natural-gas transportation, the gas-grid concept is less recognized than its power efficient as a result of the development of trading hubs, and significant regulatory counterpart, natural gas grids are becoming smarter and integration of information and changes have combined to create a more dynamic more efficient as a result of the integration of information communication technologies economic environment for the natural gas business. and communication technologies. Indexation of gas prices to the oil price is becoming less common, especially in the U.S., whose gas market is the most liquid in the world. As a result, the price spreads between three main regional blocs – North America, Europe and Asia – have widened. In order to balance Figure 7: Crude oil and natural gas: regional spot prices seasonal demand variations and ensure supply security, $/Mbtu, 2005-2014 natural gas can be stored, both underground and above ground. 25 Gas storage has become an important consideration Compound annual As markets mature, storage is becoming increasingly growth rate important in stabilizing prices. Underground storage 20 vessels include depleted oil and gas fields, aquifers and salt 9% formations; the best choice depends on local geology and how the storage facility will be used. Flexibility in storage 15 13% capacity has become an important parameter because of growth in the use of natural gas in power generation 52% and because of the limited flexibility of production from 8% unconventional gas reservoirs. As a result, salt caverns 10 7% have become popular; although they are relatively expensive, their flexibility is unrivalled. 67% 0% 5 Gas distribution is becoming smarter and more efficient Finally, natural gas needs to be pressurized, odorized and controlled to be safely delivered to end customers. Except Henry Hub <2$/MBtu for a few large customers, most end users are supplied 0 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 through low-pressure networks. Local distribution involves 2 smaller delivery volumes than long-distance transmission, Crude oil spot price in the U.S. for Cushing West Texas Intermediate and delivery over shorter distances to many more locations. Japan average (LNG Contract) European contract Spot U.K. (National Balancing Point) Spot U.S. (Henry Hub) As a consequence, distribution lines make up the majority Source:Source: I EIEA A (2 0(2014),”Energy14),”Energy Tech Technologynology Persp ePerspectives”;ctives”; EIA onli nEIAe dat onlinea data

10 Summary FactBook | Natural Gas Series | October 2015 Permission is hereby granted to reproduce and distribute copies of this work for personal or nonprofit educational purposes. Any copy or extract has to refer to the copyright of the A.T. Kearney Energy Transition Institute. Natural gas accounts for more than 20% of the global primary energy mix and its share is expected to continue to rise, albeit at a slower pace than in recent years The role of natural gas in the global energy mix is growing In Europe, meanwhile, the share of natural gas in the Natural gas use has increased at an annual average rate power mix has recently declined. Going forward, many Between now and 2035 of 2.5% since 1990 and its share of the primary energy experts believe it will play a vital role in facilitating the non-OECD countries will demand mix has also risen. Going forward, growth in transition to a low-carbon economy by replacing coal-fired collectively account for natural gas use is expected to continue, albeit at a slower generation capacity and by compensating for shortfalls an estimated 82% of pace than in recent years. In its reference scenario, the in output from intermittent renewables. Indeed, gas- incremental gas demand International Energy Agency assumes an average annual generation technologies benefit from strong flexibility growth rate of 1.6% between now and 2035. In this and efficiency performances. scenario, natural gas demand would grow faster than demand for other fossil fuels, but slower than demand for some other low-carbon energy sources, such as wind Figure 8: Total world primary energy demand1 and solar. However, this figure is global and masks regional Exajoules (EJ), IEA New Policies Scenario for the Forecast2 disparities, not to mention absolute value. Natural gas Compound annual average growth rate 62.1% use in China, for example, is expected to multiply four-fold 60.6% 800 58.8% 1990-2011 2011–2035 between now and 2035. Over that period, non-OECD 56.8% 728 60% 696 (Organisation for Economic Co-operation and Development) 700 52.6% 665 3.2% 4.4% 49.2% countries will collectively account for an estimated 82% 629 50% 1.8% 1.5% of incremental gas demand. 600 547 1.2% 2.1% The power sector is the largest and fastest-growing driver for 500 40% 25.5% natural gas demand 27.2% 26.3% 2.5% 0.7% Power represents 40% of gas demand globally, up 28.0% 400 367 28.9% 30% from 35% in 1990. Natural gas is now the second most 300 important fuel in the power mix, after coal. However, the 26.8% 25.4% 27.7% 1.2% 0.5% role of natural gas in power generation varies widely from 29.8% 28.6% 20% 31.4% region to region. It tends to dominate in gas-rich regions, 200 such as Russia or the Middle East. In North America, 36.8% 10% 100 23.1% 23.7% 2.5% 1.6% lower gas prices resulting from the shale gas boom have 21.3% 21.8% 22.5% 19.0% encouraged a switch from coal to gas in power generation. 0 0% In the Asia-Pacific region, demand for natural gas in power 1990 2011 2020e 2025e 2030e 2035e generation has increased strongly in absolute terms, but its New Policies scenario assumptions share of the power-generation mix has remained steady. Other renewables Bioenergy Nuclear Coal Oil Natural gas Share of natural gas demand from non-OECD countries

Note:Note: 11 T hThisis ta ktakeses int ointo acc oaccountunt direc directt fuel d fuelema ndemandd and fue andl use fueld for used power for an powerd heat g andene rheatation ;generation; 2 The New Policies Scenario is the IEA’s reference scenario. It 2 assumesThe New P recentolicies Sgovernmentcenario is the policy IEA’s r ecommitmentsference scenari owill. It abess uimplementedmes recent go vevenernm ifen theyt poli chavey com notmi tyetmen beents will ratifiedbe implemented even if they have not yet been ratified Source:Source: IEIEAA (2 (2013),013), “W “Worldorld Ene rEnergygy Outlo Outlookok 2013” 2013”

11 Summary FactBook | Natural Gas Series | October 2015 Permission is hereby granted to reproduce and distribute copies of this work for personal or nonprofit educational purposes. Any copy or extract has to refer to the copyright of the A.T. Kearney Energy Transition Institute. The direct use of natural gas in buildings is predominantly Natural gas is garnering attention in the transport sector oil; it could reduce dependence on imported oil; and burning for thermal end uses Even if its role in transportation remains marginal globally, gas instead of oil could reduce local air pollution significantly. For many years, the use of natural gas in commercial natural gas is already being used on a large scale in However, it is doubtful whether increasing gas use in and residential buildings was the backbone of natural gas passenger vehicles in several Asian and South American vehicles would have a significant beneficial impact on demand. The buildings segment still accounts for 22% countries. The role of natural gas in transport may develop climate change. There is also a shortage of gas of direct natural gas demand and this share is expected to further – not just in passenger vehicles, but also in heavy- infrastructure and a premium capital cost attached to remain stable in the next few decades. Thermal applications duty vehicles and in rail and maritime transport. Using gas gas-fuelled vehicles. In addition, the energy density of are dominant: space heating, water heating and cooking instead of oil products has economic, strategic and natural gas is much lower than that of oil, making it a less account for 54%, 22% and 11% of natural gas demand in environmental benefits: gas is, at present, cheaper than useful fuel in transportation. the buildings sector, respectively. The use of natural gas in buildings varies significantly, depending on climate, Figure 9: Primary natural gas demand by sector urbanization patterns, and building design and insulation. Exajoules (EJ), IEA New Policies Scenario for the Forecast1

Compound annual average growth rate For many years the use of 180 163 1990-2011 2011–2035 natural gas in commercial 160 154 1.9% 0.8% 146 and residential buildings 2% na 3.1% 140 134 2% was the backbone of natural 2% 24% 1.3% 2.1% gas demand 120 25% 106 25% 100 26% In industrial applications, natural gas is used as a heat source, 21% 1.5% 1.4% 21% but also as a chemical feedstock 80 70 23% 21% Direct natural gas consumption represents around 18% 21% 60 of final energy consumption in industrial applications. 26% 22% The chemicals and petrochemicals sectors are by far 40 26% 43% 43% 2.6% 1.5% the most important consumers (accounting for 44% of 41% 43% total industrial demand for gas). This is because natural 20 40% 35% gas is largely used as a source of heat in refineries and 0 as feedstock for producing ammonia and methanol. 1990 2011 2020e 2025e 2030e 2035e Other than for chemicals, the bulk of industrial gas demand New Policies scenario assumptions comes from small-scale industrial consumers using natural gas in small-to medium-scale boilers to generate heat. Other2 Transport Industry Buildings Power generation Any switch from coal to gas in the industrial sector is likely Note:Note : 11 T Thehe Ne Neww Po Policieslicies Sce Scenarionario is th eis I nttheern Internationalational Energy Energy Agency ’Agency’ss reference reference scenario. It scenario. assumes Itre cassumesent govern recentment p governmentolicy commitm policyents w commitmentsill be implemente willd, e beven implemented, if they to be relatively limited and subject to the development of hevenave n otif theyyet b ehaveen rat notified yet; 2 beenOther ratified;includes t h2e Other use of includes gas for o ilthe & g useas e xoftra gasctio nfor, in oilliq u&e fgasactio extraction,n plants and infor liquefaction distribution plants and for distribution carbon pricing. Source:Source: IEIEAA (2 (2013),013), “W “Worldorld Ene Energyrgy Out loOutlookok 2013 ”2013”

12 Summary FactBook | Natural Gas Series | October 2015 Permission is hereby granted to reproduce and distribute copies of this work for personal or nonprofit educational purposes. Any copy or extract has to refer to the copyright of the A.T. Kearney Energy Transition Institute. Conclusion About the A.T. Kearney Energy Institute It is clear that natural gas has become a crucial The A.T. Kearney Energy Transition Institute is a nonprofit organization. It provides leading insights on global trends in energy transition, technologies, and strategic implications for private sector businesses and public sector institutions. part of the energy mix and will remain so due to The Institute is dedicated to combining objective technological insights with economical perspectives to define the its sizeable and accessible resources, low carbon consequences and opportunities for decision makers in a rapidly changing energy landscape. The independence of foot print, and versatility. Even though complex the Institute fosters unbiased primary insights and the ability to co-create new ideas with interested sponsors and relevant stakeholders. infrastructure is needed to get natural gas to end users, global trade is increasing and the share of energy from natural gas is expected to rise in the future. Acknowledgements A.T. Kearney Energy Transition Institute wishes to acknowledge Dr. Anouk Honoré, a Senior Research Fellow A.T. Kearney Energy Transition in the Natural Gas Research Programme at the Oxford Institute FactBooks Institute for Energy Studies (OIES), for her detailed review of this FactBook. The Institute also wishes to thank the Natural Gas Series authors of this FactBook for their contribution: Benoit – Introduction Decourt, Romain Debarre, and Sylvain Alias. – Gas Hydrates Low Carbon Energy Technologies Series – Carbon Capture and Storage – Wind – Solar PV – Solar CSP – Storage – Hydrogen Water & Energy Smart Grids For further information about the A.T. Kearney Energy Transition Institute and possible ways of collaboration, please visit www.energy-transition-institute.com or contact us at [email protected]. Climate Change

13 Summary FactBook | Natural Gas Series | October 2015 Permission is hereby granted to reproduce and distribute copies of this work for personal or nonprofit educational purposes. Any copy or extract has to refer to the copyright of the A.T. Kearney Energy Transition Institute.