Claybridge Energy

Photo of New York City July 2015 Copyright: ESA

Energy demand is growing at an exponential rate

Forecasting long-term energy trends begins with a simple fact: people need energy. Over the next few decades, population and income growth – and an unprecedented expansion of the global middle class – are expected to create new demands for energy. Some see global energy consumption rising by about 35 percent from 2010 to 2040.

consumers

Among the many observers who foresee a dramatic expansion of the world’s middle class, The Brookings Institution has recently estimated that the number of people who earn enough to be considered “middle class” will reach 4.7 billion by 2030, up from 1.9 billion in 2010.  

industry

Almost half of the world’s energy is dedicated to industrial activity. Industry accounts for 30 percent of primary energy usage and 50 percent of electricity demand.

LIQUEFIED natural gas

Global liquefied natural gas (LNG) demand has risen an estimated 7.6% per year since 2000 — a rate almost three times faster than global natural gas demand, which is estimated to have grown by about 2.7% per year over the same period. Between 2015 and 2020, Moody’s Investors Service estimates that Japan will remain the largest importer of LNG and will account for roughly one third of the global LNG market (with South Korea holding steady as the second largest importer). Additionally, China, India, the Middle East, Europe and South America are becoming players in the LNG demand market as well; however, these demand centers tend to have more available competitive energy options, including coal, oil and other sources of natural gas, and will generally be more price sensitive and less likely to willingly pay supply security premiums than the other markets.

Adding fuel to the fire, LNG demand is expected to average annual growth of around 5% to 6% per year through 2020 (and is anticipated to continue to grow after 2020 at a slightly lower rate). In response to this rising demand, more than 30 countries have proposed plans to build or add LNG import/re-gasification capacity. By 2020, the number of countries with import capacity is projected to double from the 25 countries with import capacity today.

As a natural response to this steady increase in demand, US companies, with access to relatively cheap natural gas, are clamoring to assume a role in providing LNG exports to these premium markets. (Source: Ernst & Young "US LNG Exports Driven By Demand")

As the distances between major gas-producing and consuming regions increase, this expansion is set to continue in a very significant manner. 

natural gas & the US energy transition

The U.S. position in natural gas is a crucial asset in making America’s energy transition both feasible and at a competitive cost across a range of carbon reduction scenarios, at least through 2030. Natural gas can replace up to 50% of the existing coal capacity by 2022 at lower cost, providing significant economic and carbon benefits, regardless of other climate policies. (Source: Harvard Business School & BCG "Americas Unconventional Energy Opportunity")

EPA Administrator Gina McCarthy put it well in April 2015 when she said, “[Fracking] has changed the game for me in terms of how the energy system is working. The inexpensive gas that’s being produced has allowed us to make leaps and bounds in progress on the air pollution side and, frankly, to make the Clean Power Plan.”

A recent report by the Massachusetts Institute of Technology (MIT) found that in the U.S., a combination of demand reduction and displacement of coal-fired power by gas-fired generation is the lowest cost way to reduce CO2 emissions. For more stringent CO2 emissions reductions, further de-carbonization of the energy sector will be required; but natural gas provides a cost-effective bridge to such a low-carbon future. 

The MIT study concluded that over the past few years, the U.S. has developed an important new natural gas resource that fundamentally enhances the nation’s long-term gas supply outlook. Given an appropriate regulatory environment, which seeks to place all lower carbon energy sources on a level competitive playing field, domestic supplies of natural gas can play a very significant role in reducing U.S. CO2 emissions, particularly in the electric power sector. This lowest cost strategy of CO2 reduction allows time for the continued development of more cost-effective low or zero carbon energy technology for the longer term, when gas itself is no longer sufficiently low carbon to meet more stringent CO2 reduction targets. The newly realized abundance of low cost gas provides an enormous potential benefit to the nation, providing a cost effective bridge to a secure and low carbon future. It is critical that the additional time created by this new resource is spent wisely, in creating lower cost technology options for the longer term, and thereby ensuring that the natural gas bridge has a safe landing place in a low carbon future. (Source: MIT Study on the Future of Natural Gas - http://mitei.mit.edu/system/files/NaturalGas_Report.pdf)