Tuesday, December 11, 2012

Exxon's Updated Energy Outlook Sees More Natural Gas

Exxon released its annual forward-looking 2013 energy outlook report today, and the report sees a stronger market for natural gas than was indicated last year.  It's an interesting report that forecasts demographic and energy data through 2040, but I'll cherry pick some bits relevant to natural gas below.

Overall, Exxon expects natural gas to overtake coal for the second largest energy source by 2040.  Gas is expected to have a 65% growth rate compared to coal, which should decline slightly over the same period.

Demographically, Exxon sees world population growing to 9 billion by 2040.  By 2030, India should overtake China as the most populous country.  By 2040, India will still have a relatively young population while China's age distribution will look very much like that of developed countries.

For the next thirty years, growth in worldwide energy consumption will be driven by developing countries, as developed nations will see relatively low population growth and increased trends towards efficiency and conservation.  As the chart below shows, China will drive energy consumption growth through around 2025 when its consumption (and population growth) stabilizes.

Electricity will be the largest energy consuming sector over the next thirty years, and much of this consumption will be driven by the residential sector largely because of population growth.  

Through 2040, electricity and gas will be the two fastest growing fuels consumed by residential and commercial uses.

Per capita residential energy consumption is expected to decrease in developing nations, but in regions of the largest populations, Asia and Africa, it is expected to be relatively stable at a level that is less than half that of developed nations.  But any increase in residential consumption in these developing nations would drive residential energy consumption significantly higher. 

Industrial growth is expected to be strong through 2025.  Driven by heavy industry (steel, concrete, etc.) and chemicals (plastics, agriculture), growth will almost exclusively be in developing countries.  China is expected to be the big driver, but Exxon expects growth there to taper off around 2025, offsetting growth in other developing countries through 2040.  During that latter period, Exxon expects natural gas to capture industrial market share from coal.

Transportation is often cited as a growth market for natural gas.  But compared to other fuels, especially gasoline and diesel, Exxon doesn't expect natural gas to gain much market share.

The main driver for natural gas in transportation is expected to be in heavy trucks and marine uses, with very little coming in light duty vehicles.

In terms of natural gas supply, Exxon expects that by 2040, 80% of North American natural gas will be produced from domestic unconventional sources, such as shale.

While unconventional gas resources are scattered around the globe (see below), Exxon doesn't expect to see any significant development of these resources outside of North America until at least 2025 largely because of a lack of infrastructure and expertise.

This is but a speedy snapshot of the report that hardly does it justice.  Bottom line:  energy growth will be driven by population growth in developing nations over the next thirty years.  Natural gas will continually gain market share over that period, but its growth will be especially pronounced beginning around 2025 when consumption growth levels (especially in China) begin to level off.

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