This document discusses trends in the natural gas market and outlook. It notes that advances in technology have led to a surge in unconventional gas supply in North America, creating a divergence in regional gas prices. Many countries want to emulate this success, but concerns remain about the environmental and social impacts. Looking ahead, factors on both the supply and demand side are pushing gas to a higher share in the global energy mix, changing trade patterns and connections between markets. For gas to fulfill its role in a low-carbon future, social and environmental concerns must be properly addressed through international cooperation.

1. An outlook for natural gas
Fatih Birol
IEA Chief Economist
22 January 2013
© OECD/IEA 2013

2. The context
 Foundations of global natural gas markets are shifting
 Advances in technology have led to a surge in unconventional gas
supply in North America
 Strong divergence in regional gas market conditions & prices
 Many countries are lining up to emulate North America’s success;
notably in China, Australia, Latin America & parts of Europe
 But concerns remain that production might involve unacceptable
environmental & social damage
 Major implications for local communities, land use & water resource
 Serious hazards include the potential for air & water pollution
 Improperly addressed, these concerns could hold back,
& perhaps halt, the unconventional gas revolution
© OECD/IEA 2013

3. De-coupling of regional gas prices
20
$2012/MBtu
18
16
Japan (LNG import)
14
12
10
Europe
(German import)
8
6
4 US (Henry Hub)
2
0
1991 1994 1997 2000 2003 2006 2009 2012
At its lowest level in 2012, natural gas in the United States traded
at around one-fifth of import prices in Europe & one-eighth of those in Japan
© OECD/IEA 2013

4. Canada following the unconventional path
Canadian oil & gas production
10
mboe/d
Unconventional gas
Conventional gas
5
Unconventional oil
Conventional oil
1980 1990 2000 2010 2020 2030 2035
Production from oil sands & from shale make Canada
one of the pioneers of unconventional resource development
© OECD/IEA 2013

5. A United States oil & gas transformation
US oil & gas production
mboe/d 25
20
Unconventional gas
15
10 Conventional gas
Unconventional oil
5
Conventional oil
1980 1990 2000 2010 2020 2030 2035
The surge in unconventional oil & gas production has implications
well beyond the United States
© OECD/IEA 2013

6. A changing power mix
US electricity generation growth, 2006-2011
Natural gas
Renewables
Nuclear
Oil
Coal
-300 -200 -100 0 100 200 300
TWh
Over the past 5 years, natural gas & renewables were the main sources of growth
in electricity generation in the United States, with implications for GHG emissions
© OECD/IEA 2013

7. Growth in world coal demand, 2011
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
Japan United Russia Latin World Developing European
States America Asia Union
European Union coal demand rose by a historical 7% in 2011,
benefitting from cheap US imports
© OECD/IEA 2013

8. Different trends in oil & gas
import dependency
Net oil & gas import dependency in selected countries
Japan
Gas Imports 100%
2010
2035
80%
European Union
60%
40%
20% China
India
United States
0%
Gas Exports 20%
20% 40% 60% 80% 100%
Oil imports
Dependence on imported oil and gas rises in many countries,
though the US swims against the tide
© OECD/IEA 2013

9. The (gradual) spread of the
unconventional revolution
Unconventional gas production, 2035
United States Shale
China Coalbed methane
Canada
Australia Tight
India
Russia
Argentina
Mexico
Indonesia
Algeria
European Union
0 100 200 300 400 500 600
bcm
Outside Canada & the United States, 80% of anticipated growth
in unconventional gas production takes place after 2020
© OECD/IEA 2013

10. Looking to the future, emerging economies
will drive energy demand growth
Share of global energy demand
6 030 Mtoe 12 380 Mtoe 16 730 Mtoe
100% Rest of non-OECD
Non-OECD
Middle East
80%
India
China
60%
OECD
40%
20%
1975 2010 2035
Global energy demand rises by over one-third in the period to 2035,
underpinned by rising living standards in China, India & the Middle East
© OECD/IEA 2013

11. The power sector points to the diverse
drivers for gas demand growth
Change in power generation, 2010-2035
Coal Gas Nuclear Renewables
China
India
United States
European Union
Japan
-1 000 0 1 000 2 000 3 000 4 000 5 000 6 000
TWh TWh
A mixture of factors leads to increased gas use: cheaper gas, nuclear phase-outs,
a desire to diversify the fuel mix, and local and global environmental concerns
© OECD/IEA 2013

12. The shifting balance of supply & demand points
to a more globalised market
Major global gas trade flows, 2010
2035
Rising supplies of unconventional gas & LNG help to diversify trade flows,
putting pressure on conventional gas suppliers & oil-linked pricing mechanisms
© OECD/IEA 2013

13. Conclusions
 Factors on both the supply & demand side pushing gas towards
a higher share in the global energy mix
 Changing patterns of gas production & use have profound implications
for global gas trade, with new connections between regional markets
 Improperly addressed, social & environmental concerns could
hold back the unconventional gas revolution
 Natural gas has a role to play in moving us towards
a low-carbon energy economy
 IEA-led high-level forum can address key policy & regulatory issues for
safe & sustainable gas development, building on the “Golden Rules”
© OECD/IEA 2013