Carola Hoyos Rafael Sandrea: A new look at natural gas reserves

Natural gas is considered the queen of the fossil fuels mainly because it is the cleanest of them all and the world is in transit to a low carbon economy. This has led to an abnormally high increase in gas production as energy demand shifts towards this resource for power generation and natural gas vehicles. This is particularly true in the industrialized countries, partly because there is a perception that there are abundant supplies of natural gas. In fact, natural gas is the world’s fastest growing fossil energy source, contributing almost 50 million barrels a day of oil equivalent and acting as the principal supplier to industry, petrochemical feedstock, agriculture, and residential and commercial uses. These sectors now account for two-thirds of the natural gas consumed.

On a global scale, however, this valuable resource stands for less than one-fifth of the total oil and gas resources discovered so far, making it more compelling that we have to conserve it as much as possible.

Supply and demand of natural gas have increased a sizzling 30 per cent in the last 10 years, from a little more than 220 bcfd to 287 bcfd today and, according to the latest demand models, is expected to further increase 50 per cent, to reach 337 bcfd by 2015 and 425 bcfd by 2030. The Big Three producers: Russia (63 bcfd), US (51 bcfd) and Western Europe (28 bcfd) account for half of the world’s natural gas output. The issue is: Can natural gas reserves meet this growing demand? Remember that reserves are the foundation of production capacity. We must also bear in mind that produced oil provides roughly 16% of the world’s output of natural gas (through associated gas) while natural gas provides (through NGLs) 12% of the total petroleum liquids supply pool of 84 million b/d. So there is a strong interdependence between the outputs of crude oil and natural gas. They nurture each other significantly even though they have different market drivers. In other words, we need to look at future oil & gas supply from a coupled or integrated point of view. This is the uniqueness of our report.

Although nature might have bestowed us with comparable amounts of ultimate reserves of natural gas and crude oil, we have already seen the effects of stretching the limits of oil supply – oil prices at $147. The following Table exemplifies the future supply quandary with natural gas.

Future Global Natural Gas Production Capacity by Region bcfd for 2006 2015 2030

E.Europe/Eurasia: 81, 92, 103♦♦

N.America : 73 , 76 , 73↓

Asia-Pacific: 37 , 50, 52♦

Middle East: 31, 46 , 96♦♦♦♦♦

W.Europe: 29, 27, 21↓

Africa : 18 , 27 , 43♦♦

L. America : 13 17 27♦

WORLD : 284, 337, 425

Source: IEA. ♦ Indicates rank of volume increase, 2006-2030.

Production from North America and Western Europe, the two largest consumers, will be dropping off by 2030 and the key to meet a world demand of 425 bcfd lies in the Middle East. They would have to triple their current production capacity. This is a 5-star increase that would come primarily from Qatar and Iran. Eurasia, mainly Russia and Turkmenistan, would have to increase its capacity by 30 per cent. The Middle East and Eurasia would jointly account for half of the world’s gas production by 2030. More importantly, they would have to provide more than 60 per cent of the increase in demand expected of 141 bcfd. Contrary to the case of oil wherein reserves are dwindling, all of the above regions already have sufficient gas reserves to attain the future production capacities required. However, developing them would require massive investments to develop them and therefore it is almost safe to say that in the not too distant future, the world could experience supply/demand imbalances with gas, and prices will inevitably move towards more symmetry with those of oil, thereby removing the customary price attractiveness of natural gas.

For more of Dr Rafael Sandrea’s work on global oil and gas resources see: “An In-Depth View of Future World Oil & Gas Supply – A Quantitative Model” which is available online through PennEnergy: