Global natural gas supply and demand are tightly balanced, and gas prices may remain medium-high



Global gas supply and demand have maintained a tight balance in recent years

According to BP data, the global natural gas supply and demand have been basically balanced in the past decade, and the total global natural gas supply in 2021 will be 4,036.9 billion cubic meters, up 4.5% year-on-year, and the total demand will be 4,037.5 billion cubic meters, up 5.0% year-on-year, and the supply will be lower than the demand for the first time in nearly five years (-600 million cubic meters). In the past three years, the global capital expenditure on natural gas has been insufficient, and the space for capacity improvement is limited. According to the IEA, global average capital expenditure on natural gas in 2020-2022 is $249 billion, lower than the level of capital expenditure in 2015-2019. Among them, the global gas capital expenditure in 2022 was $272 billion, an increase of 8.1%, which still did not reach the level before 2019, and was only 77.6% of the 2015 level ($351 billion), and the lack of capital expenditure also reflects the limited space for future gas capacity improvement.

In recent years, the production of natural gas in the main production areas has shown a rising trend

Since 2015, natural gas production in major producing regions has been on the rise, according to BP data, global natural gas production is mainly concentrated in North America, Central Asia, the Middle East and the Asia-Pacific region, Production increased from 949.0, 754.3, 600.9 and 560.0Bcm in 2015 to 1135.8, 896.0, 714.9 and 699.0 Bcm in 2021, with CAGR of +3.0%, + 2.9%, + 2.9 and %+3.0%, respectively. By the end of 2021, North America, Central Asia, the Middle East and Asia Pacific accounted for 28.1%, 22.2%, 17.7% and 16.6% of global production, respectively.

Natural gas production is mainly concentrated in the United States, Russia, Iran and China

By region, North American production is mainly concentrated in the United States, and the natural gas production in 2021 will be 934.2 Bcm, accounting for 82.3%. Central Asian production is mainly concentrated in Russia, which will produce 701.7 Bcm of natural gas in 2021, accounting for 78.3%. In the Middle East, the production is mainly concentrated in Iran, Qatar and Saudi Arabia, and the natural gas production in 2021 will be 256.7, 177.0 and 117.3 Bcm, accounting for 35.9%, 24.8% and 16.4%, respectively. Production in the Asia-Pacific region is mainly distributed in China, Australia and Malaysia, with 209.2, 147.2 and 74.2 Bcm of natural gas production in 2021, accounting for 31.3%, 22.0% and 11.1%, respectively.

Natural gas demand continued to grow in most regions, with relatively significant growth in the Asia-Pacific region

According to BP data, since 2015, North America, Asia Pacific, Central Asia, Middle East and Europe, The demand increases from 934.7, 715.7, 527.5, 479.3 and 509.2 Bcm in 2015 to 1034.1, 918.3, 610.8, 575.4 and 571.1 Bcm in 2021, respectively. CAGR was +1.7%, +4.2%, +2.5%, +3.1% and +1.9%, respectively. By the end of 2021, North America, Asia Pacific, Central Asia, the Middle East and Europe accounted for 25.6%, 22.7%, 15.1%, 14.3% and 14.1% of the total global demand, respectively. 

Distribution of natural gas demand by region

The demand in North America is mainly concentrated in the United States, and the demand for natural gas in 2021 is 826.7 Bcm, accounting for 79.9%; The demand in Central Asia is mainly concentrated in Russia, and the demand for natural gas in 2021 will be 474.6 Bcm, accounting for 77.7%; The demand in the Middle East is mainly distributed in Iran, Saudi Arabia and the United Arab Emirates, and the demand for natural gas in 2021 will be 241.4, 117.3 and 69.4 Bcm, respectively. The top five countries in Europe are Germany, the United Kingdom, Italy, Turkey and France, and the demand for natural gas in 2021 will be 90.5, 76.9, 72.5, 57.3 and 43.0 Bcm, respectively. They accounted for 15.9%, 13.5%, 12.7%, 10.0% and 7.5% respectively. Among them, EU countries accounted for 67.8% of the demand.

From the use point of view, the world's natural gas is mainly used for power generation

According to the Australian Department of Industry, Science and Resources, 40% of the world's natural gas will be used in the power sector in 2020, which is the most important source of demand. The remaining residential, industrial and transportation needs accounted for 22%, 20% and 19%, respectively.

Global trade in natural gas continues to grow, with the bulk of the increase coming from LNG

According to BP, global gas trade volume increased from 781.7 Bcm in 2015 to 1,021.9 Bcm in 2021, at a CAGR of +4.6%. In terms of structure, the increase of global natural gas trade mainly comes from LNG, with a trade volume of 516.2 Bcm in 2021, and a CAGR of +7.0% in 2017-2021. At the same time, the proportion of LNG trade volume is also increasing year by year, accounting for about 50.5% in 2021, an increase of 7.4 pct compared with 2015. The overall trade volume of pipeline gas has remained stable since 2017 (except for a slight decline in 2020), achieving a trade volume of 505.6 Bcm in 2021, and a CAGR of -0.2% in 2017-2021.

Global LNG imports are mainly from Asia Pacific and Europe

From the perspective of regional structure, global LNG imports mainly come from Asia Pacific and Europe. According to BP data, in 2021, the imports of Asia Pacific and Europe will be 371.8 billion square meters and 108.2 billion square meters, accounting for 72.0% and 21.0% respectively. By region:  9.0% and 7.2%, respectively; The import demand in Europe mainly comes from EU countries, of which Spain, France and Turkey will import 20.8 billion square meters, 18.1 billion square meters and 13.9 billion square meters in 2021, accounting for 19.2%, 16.7% and 12.9% respectively, and the EU accounted for 86.1% in total; Non-eu regions (including the UK) imported 15 billion cubic meters, accounting for 13.9%.

The increase in LNG exports in recent years has been mainly concentrated in the Americas

The main export regions of global LNG are Asia Pacific, the Middle East and the Americas, and the growth structure has differentiated in recent years. Since 2019, the export volume of Asia Pacific and the Middle East has remained stable. According to BP data, the export volume of Asia Pacific and the Middle East in 2021 will be 176.3 and 129.7 Bcm, with a CAGR of -0.3% and +0.8% respectively in 2019-2021. LNG exports from the Americas have been increasing in recent years, reaching 108.3 Bcm in 2021, with a 2019-2021 CAGR of + 24.5%. By the end of 2021, Asia Pacific, the Middle East and the Americas accounted for 34.2%, 25.1% and 21.0% of global LNG exports, respectively.

The Russia-Ukraine conflict in 2022 catalyzed a shift in the pattern of global gas trade

The gap between natural gas supply and demand in Europe continues to widen, and imports will depend on Russian pipeline gas in 2021 and before

The gap between natural gas supply and demand in Europe continues to widen, and imports will depend on Russian pipeline gas in 2021 and before. With the depletion of North Sea gas fields controlled by the United Kingdom and the Netherlands, natural gas production in Europe has declined year by year, and the steady rise in demand has amplified the gap between natural gas supply and demand in Europe, according to BP data, the gap between natural gas supply and demand in Europe has expanded from 296.1 billion cubic meters in 2017 to 360.6 billion cubic meters in 2021. With a CAGR of +5.1% for 2017-2021, the gap between supply and demand in 2021 represents about 63.1% of the total 571.1 billion cubic meters of gas demand in the European region during the same period. European natural gas imports are mainly from Russia, although the number of Russian pipeline gas imports in 2020-2021 has been reduced, but Europe still has a high degree of dependence on Russian pipeline gas, according to BP data, Russian pipeline gas imports in 2021 reached 167 billion square meters, still accounting for 49% of Europe's total imported gas (341 billion square meters). From the perspective of gas source structure, in 2021, imported pipeline gas and LNG accounted for 68.3% and 31.7% respectively in Europe, and pipeline gas was the main form of natural gas import. Among them, Russia, Africa, CIS and the Middle East accounted for 71.7%, 16.0%, 8.4% and 3.9% of total pipeline gas imports.

Under the Russia-Ukraine conflict, Europe and Russia launched a game in the energy field, and the global LNG trade pattern changed

Under the Russia-Ukraine conflict in 2022, in order to deal with the chaos of the global energy market and energy security issues caused by the accelerated energy system reform to end the dependence on Russian fossil energy, the European Union proposed the "REPowerEU" energy plan. In the plan, the EU proposed to import 50 billion cubic meters of LNG and 10 billion cubic meters of pipeline gas from other countries in 2022, reducing demand by a total of 38 billion cubic meters, including 20 billion cubic meters of gas reduction in the power sector, in order to gradually replace Russian natural gas, thus opening a structural shift in the global LNG trade pattern. On the other hand, Russia's anti-sanctions measures on natural gas combined with the accidental damage of the Nord Stream pipeline have significantly reduced the number of Russian pipeline gas exports to Europe in 2022.

In 2022, the global LNG trade pattern will undergo structural changes

Global LNG trade volume will maintain growth in 2022. Global LNG trade volume rose from 286 million tons in 2017 to 398 million tons (about 568.15 billion cubic meters) in 2022, with a CAGR of +6.8% in 2017-2022, with a 4.8% year-on-year growth in 2022, maintaining a modest growth. In terms of structure, the top five major LNG importing countries/regions in 2022 are the European Union, Japan, China, South Korea and India, accounting for 30%, 19%, 16%, 12% and 5% respectively; The top five major exporting countries are Australia, Qatar, the United States, Russia and Malaysia, accounting for 21%, 20%, 19%, 8% and 7% respectively.

In 2022, China's natural gas imports have declined significantly, and the complementary role of pipeline gas is limited

Domestic production has risen steadily in recent years, and declining imports in 2022 constrain demand growth

In terms of domestic production, according to Wind data, China's natural gas production has continued to grow in the past decade, with a CAGR of +7.1% from 2011 to 2022, of which 217.8 billion cubic meters of self-produced gas will be achieved in 2022, up 6.1% year-on-year. In terms of domestic demand, the rising demand for natural gas in China in the past decade has led to the simultaneous growth of imports, and imports and consumption have declined in 2022. According to Wind data, the apparent consumption of domestic natural gas increased rapidly from 107.4 billion cubic meters to 374 billion cubic meters in 2010-2021, with a CAGR of +12.0% in 2010-2021. During the same period, China's natural gas imports rose rapidly, from 16.6 billion cubic meters to 168.7 billion cubic meters. The CAGR for 2010-2021 is +23.5%. Domestic natural gas imports and apparent consumption in 2022 declined, and domestic natural gas imports in 2022 were 151.9 billion cubic meters, down 10.0% year-on-year, and apparent consumption was 363.8 billion cubic meters, down 2.7% year-on-year, maintaining a high overall level.

Structural distribution of domestic natural gas demand

From the perspective of industry distribution, the demand in 2021 mainly comes from the industrial fuel and urban gas industries, accounting for 40% and 32% respectively, which are +1.4pct and -1.9 pct compared with 2018 respectively. Other demand came from the power generation gas and chemical gas sectors, accounting for 18% and 10%, respectively, a change of +0.7pct and -0.2pct compared with 2018. From the perspective of consumption distribution, natural gas consumption in 2021 is mainly concentrated in East China, North China and South China markets, consuming 1062, 743 and 47.9 billion cubic meters of natural gas respectively, accounting for about 29.0%, 20.3% and 13.1% of the total consumption, respectively, with year-on-year changes of +13.3%, 15.2% and 23.8%. The top five consumption provinces in 2021 are Guangdong, Jiangsu, Sichuan, Shandong and Hebei, with a consumption of 364, 314, 268, 237 and 22.8 billion square meters, accounting for 9.8%, 8.4%, 7.2%, 6.4% and 6.1% of the current apparent consumption, respectively.

There are three routes for China's pipeline gas imports, and the transport volume of Central Asia and China-Myanmar pipelines has remained stable in recent years

There are three ways for China to import pipeline gas, namely the Central Asian pipeline line, the China-Myanmar pipeline line and the China-Russia pipeline line: The Central Asia pipeline is transported by four pipeline lines A/B/C/D, of which A/B/C three lines are parallel, starting from Turkmenistan, passing through Uzbekistan and Kazakhstan, and ending in Khorgos, China. The designed transportation capacity is 60 billion square meters/year, and the actual transportation capacity in 2021/2022 is 44/43.2 billion square meters; Central Asia Pipeline gas Line D designed transport capacity of 30 billion square meters/year, is still under construction. The China-Myanmar pipeline, starting from Kyaukpyu Port on Langli Island on the western coast of Myanmar, through Yunnan and Guizhou provinces to Guigang in Guangxi Province of China, has a designed transportation capacity of 12 billion square meters/year, and an actual annual transportation capacity of about 5.2 billion square meters.

Looking forward to the next 2-3 years, global natural gas supply and demand are still tight balance, and gas prices may remain medium and high

Global LNG plant capacity growth in 2023 is limited, with growth concentrated in 2025 and beyond

In 2023, the new capacity of the global LNG liquefaction plant is Greater Tortue Ahmeyim Phase 1 project and Tangguh LNG Train III project, respectively, and the total new liquefaction capacity is expected to be 10.8 billion cubic meters/year, down from 27.6 billion cubic meters/year in 2022. The new capacity of liquefaction plants in the future is mainly concentrated in 2025 and after, of which, the new liquefaction capacity is expected to be about 34.6 billion cubic meters/year in 2024, and the total new liquefaction capacity in 2025 and after will reach 80.7 billion cubic meters/year; By country, the new liquefaction capacity is mainly concentrated in the United States and Russia, in the 2022-2027 period, the new liquefaction capacity of the United States and Russia is about 62 billion cubic meters/year and 21 billion cubic meters/year, respectively.