Natural gas market fundamentals exceeded expectations in 2017

Global gas market fundamentals have trended upward in 2017. Global natural gas consumption rose by 3.3% to reach a new peak of 3640 bcm in 2017, according to CEDIGAZ First Estimates (May 2018). Macroeconomic factors (abundant natural gas supply, economic growth) contributed to this bullish trend. Regulatory and policy factors also explained this performance. Considering the average growth of 1.5%/year of the five previous years, the 2017 performance looks impressive.

The biggest story of the gas markets in 2017 was the huge growth in Chinese demand (+ 15%; + 30 bcm). This achievement mainly resulted from the ongoing intensification of environmental policy, enhancing coal-to-gas switching. The Middle East and Africa both also posted strong increases, at 4.8% and 6.7% respectively, aided by improving infrastructure, incremental CCGT generating capacity and availability of gas (Iran, Egypt…). In Europe (Turkey included), natural gas consumption was up 4.8%, helped by both the competitiveness of gas relative to coal and the weakness in nuclear and hydro energy. In the CIS, natural gas consumption returned to growth in Russia, driven by heating and the resumption of industrial activity. In the opposite direction, consumption was sluggish in North America (United States) and South & Central America. In the United States, gas consumption posted an unusual drop in 2017 (- 1.4%), following seven years of strong growth, amid higher natural gas prices. Natural gas consumption in the power sector fell by more than 7% as the strong expansion of renewables affected gas position in the power merit order.

NATURAL GAS DEMAND GROWTH ACCELERATED IN 2017, UNDER THE IMPULSION OF CHINA

Recent trends in world natural gas demand

The year 2017 still highlights the strong competition between natural gas, coal and renewable energies. While the global economic recovery has strengthened, it is estimated that growth in global gas consumption accelerated to 3% in the first three quarters of 2017, compared to the same period last year. But, at the same time, global consumption of coal would have increased at a similar pace, driven by Asian countries. In China, coal consumption increased significantly in 2017 after three years of decline. This increase is linked to an acceleration in electricity demand.

Many factors contributed to the strong expansion of global gas demand in 2017. As in 2016, Europe and China were the fastest growing gas markets. For the third year in a row, European gas consumption recorded strong growth in 2017, provisionally estimated at 5%, after a steady decline over the period 2010-2014. Many factors were at play: coal-to-gas switching in power generation as gas competitiveness versus coal improved; the replacement of some coal-fired power plants: a steady trend in the heating sector; the gradual economic recovery; a reduction in hydropower; French nuclear problems and a greater use of gas in transport. At the international level, it is China that has seen the largest increase, in absolute terms, in its gas demand. Cedigaz preliminary estimates show a record growth of 18% (+ 35 Bcm) in 2017, double the average growth rate observed over the period 2010-2016.

Europe and China gave new impetus to the global gas demand in 2016

The latest statistics of the International Gas Association CEDIGAZ indicate that natural gas has pursued steady expansion. CEDIGAZ Survey Natural Gas in the World 2017 confirms the first estimates published early May, showing a 1.6% growth in global gas consumption in 2016, which is in line with the past five-year average. In recent years, the role of natural gas in the energy mix has slightly progressed, against the background of falling coal consumption and rising renewable energy production. Natural gas is expected to pursue similar growth trend in the short and medium term in the context of the energy transition towards an increasingly renewable-based, efficient and sustainable energy system.