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Natural Gas is the Fuel of Choice for the 21st Century: GECF Global Gas Outlook Insights for East Asia and Asian Gas Hubs

Dmitry Sokolov Head of Energy Economics and Forecasting Department Gas Exporting Countries Forum Secretariat

The 1st East Asia Energy Forum (EAEF) How to supply and use fossil fuel? Session 3. Gas : Keynote speech August 9, 2017

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• About GECF

• Global and East Asia gas outlook drivers

• Global and East Asia demand and supply projections

• Climate change and energy developments

• Asian Gas Hub(s) : When?

• Conclusions

Contents

3 We are the Gas Exporting Countries Forum (GECF)

Oman The Netherlands Norway Kazakhstan Iraq Peru Azerbaijan

Observers (7):

67%

33%

Gas Reserves

64%

36%

Total GECF Rest of World

66%

34%

Pipeline Trade LNG Trade

Algeria

Bolivia

Egypt

Iran

Libya

Nigeria

Trinidad

and Tobago

Equatorial Guinea

Venezuela

Russia

Qatar

United Arab

Emirates

*

4 GDP, population,

urbanization and oil

prices

Global GDP growth is to accelerate between 2017 and 2020, at 3.5% per year, but starts to slow down after 2025 as developing Asia, including China and India, slow to a more sustainable long-term rate.

Global economic long-term outlook

Source: GECF Secretariat based on the data from GECF GGM

3.4 3.6 3.6 4.1

3.0

6.3

9.0

6.7

3.9

1.7 1.4

4.0 3.4 3.4

4.1

2.8

4.9

6.3

7.2

2.7 2.5

1.9

3.3 3.2 3.2 3.5

3.3 3.6

4.0

5.3

2.4 2.3 1.7

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

World GECF GECF Members Africa Latin America East Asia China India CIS North America OECD Europe

2000-2016 2017-2025 2026-2040

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GDP, population,

nization and oil prices

The main medium-term risks for East Asian economies are rapid expansion of private credit, currency rate turbulence and overdependence on growth of a single large economy

Motorisation rate in East Asia has almost tripled since 2000, but at 0.16 cars per capita still stays at global average. GECF expects it to grow 100% up to 2040 to significantly exceed global average

East Asia long-term outlook

Source: GECF Secretariat based on the data from GECF GGM

Historical Forecast

2000 2015 Rate

2000-2015

2020 2025 2030 2035 2040 Rate

2016-2040

Real GDP growth, % 5.8 5.1 6.3 4.7 4.5 3.8 3.3 3.2 3.9

GDP PPP per capita, 2016 USD

7477 16584 5.5 19811 24575 29640 34842 40755 3.7

Population, mn 2048 2303 0.8 2355 2402 2432 2449 2454 0.3

Urbanization rate, % 40.8 56.6 15.9 60.9 64.5 67.3 69.5 71.1 14.5

Car fleet, mn 137.9 375.4 6.9 464.7 564.6 649.6 722.7 777.6 3.0

Number of households, mn

572.7 759.8 1.9 797.7 842.3 884.2 923.6 959.1 0.9

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Primary energy demand is set to increase by 30% between 2015 and 2040

1%

30%

25%

50%

2.2%

16%

Over the next 25 years, primary energy demand grows by 1% per annum showing an increase of 3.9 Gtoe from 13.8 in 2015 to 17.7 Gtoe by 2040

Gas demand will rise by 50% over the outlook period, increases from almost 3500 bcm in 2015 to over 5200 bcm by 2040

Gas demand grows by 1.6% per year, stronger than growth in primary energy demand. Then gas share in primary energy mix increases from over 21% today to 25% in 2040

Gas for power sector will grow by 2.2% over the outlook period, make power sector the main source of additional gas demand

Non-hydro renewables are also growing strongly over the outlook period, their share rises from 12% today to 16% in 2040, still well below of that for gas (25%)

Global energy demand to 2040: key figures

7 Primary energy demand by fuel (Mtoe)

• World energy consumption is projected to grow by 1% per annum, climbing from 13.8 Gtoe to 17.7 Gtoe (almost 30% increase). • Natural gas will be the largest contributor to the increase in total primary energy consumption, with a

share of almost 40%.

• In East Asia energy consumption will increase sharply from 5.8 Gtoe in 2015, to 8.5 Gtoe by 2040. • The share of gas will be doubled from 592 Bcm in 2015, to 1284 Bcm in 2040.

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Natural Gas Oil Coal

Nuclear Renewables Hydro

Source: GECF Secretariat based on the data from GECF GGM

World East Asia

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Natural Gas Oil Coal

Nuclear Renewables Hydro

8 East Asia gas demand by selected countries (Bcm)

• Natural gas demand in East Asia is projected to increase dramatically over the forecast period. • China has the strong growth of the gas consumption from 190 Bcm in 2015, to 640 Bcm in

2040. • Over the projection period the use of gas in Australia will go up from 39 Bcm in 2015 to 80

Bcm by 2040.

Source: GECF Secretariat based on the data from GECF GGM

0

200

400

600

800

1000

1200

140019

9019

9119

9219

9319

9419

95

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

China Bangladesh Chinese Taipei Australia

Japan South Korea Brunei Darussalam Indonesia

Malaysia Philippines Thailand Vietnam

9 East Asia production

Source: GECF Secretariat based on the data from GECF GGM

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

900.00

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040

Outlook of East Asia natural gas production (Bcm)

China Australia Indonesia Malaysia Bangladesh Brunei Darussalam

Thailand Japan Philippines South Korea Chinese Taipei Vietnam

• China’s gas production is anticipated to increase to more than 300 bcm over the forecast period

• Australia , Indonesia and Malesia are the other gas producers in the region by the end of forecast period

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LNG trade outlook in East Asia

Source: GECF Secretariat based on the data from GECF GGM

0.00

50.00

100.00

150.00

200.00

250.00

300.00

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

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28

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20

30

20

31

20

32

20

33

20

34

20

35

20

36

20

37

20

38

20

39

20

40

LNG Export flow from East Asia (Bcm)

Australia Brunei Darussalam Indonesia Malaysia

• LNG export in the region will be dominated by Australia thanks to the huge capacities under construction that are anticipated to come on stream in medium-term

• After 2020 no more expansion in Australia’s liquefaction capacity is anticipated • Total capacity of the liquefaction in East Asia will fluctuate around 220bcm/y

(162MTPA) over the period of forecast

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Energy related CO2 emissions by fossil fuels for GECF Reference case (MtCO2)

* Estimation of energy related CO2 emissions based on IPCC updated assessment for COP 22 Conference- ** Emissions pathway compatible with 2 Degree Celsius temperature increase objective (IEA WEO 2016)

Gap Aggregated NDCs and 2 DC scenario: 8.4 GtCo2

• Energy related CO2 emissions expected to grow slowly to reach 36.8 GtCO2 by 2030 (2.2 GtCO2 more than emissions estimated from aggregated NDCs, and around 10.6 GtCo2 more than emissions estimated to be consistent with Paris Agreement target).

• To achieve Paris Agreement target, efforts beyond NDCs is required. • Around 35% of CO2 emissions in GECF forecasts by 2030 are expected to come from coal.

Post Paris Agreement policies will contribute in slowing down CO2

emissions, but large efforts are needed, beyond the NDCs

commitments

Gap GECF Ref case and Aggregated NDCs: 2.2 GtCO2 Gap GECF Ref

case and 2 DC scenario : 10.6 GtCO2

12 Global gas production by GECF and non-GECF countries (Bcm)

• GECF Members’ gas output is expected to rise to around 1,630 bcm in 2020 (39% of the world total), to over 1,700 bcm (37%) in 2030, and to almost 2,000 bcm (39%) in 2040.

• The share of the GECF member countries in global marketed gas production is expected to remain relatively stable at an average of 38% during the outlook period, while the historical average starting from 1990 was about 37%.

0

1000

2000

3000

4000

5000

6000

Non GECF GECF Observers GECF Members

Source: GECF Secretariat based on the data from GECF GGM

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Asian Gas Hub(s) – when?

• Will it be the growth in liquidity sustainable in long-term?

• Pricing benchmark suitable for all players (including producers) in the region?

Candidates for Asian Gas Hub/pricing banchmark so far: China: Shanghai Petroleum and Natural Gas Exchange (SHPGX) Chongqing Petroleum and Gas Exchange Japan: Japan Over the Counter Exchange (JOE) (Subsidiary of Tokyo Commodity Exchange (TOCOM) Singapore: Singapore Exchange (SGX) (SLING platform) Korea: (liberalization of domestic natural gas?) Samcheok region, Incheon region

Main questions:

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Conclusions

• Natural gas is the fuel of choice especially in East Asia because it is less capital-intensive than renewables and cleaner than coal.

• Cautious about the important role of natural gas for socio-economic benefits of the societies and for sustainable energy transition, GECF is determined to continue to be a key player in supplying reliably natural gas known as a triple ”A“ asset, to the market in East Asia over the next decades (with or without Asian Gas Hub(s)).

• The role of natural gas in the battle with greenhouse gas emissions gains momentum especially after the ratification of the COP21 agreement.

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Natural Gas is the Fuel of Choice for the 21st Century: GECF Global Gas Outlook Insights for East Asia and Asian Gas Hubs

Thank you very much for your kind attention More information: www.gecf.org

The 1st East Asia Energy Forum (EAEF) How to supply and use fossil fuel? Session 3. Gas : Keynote speech August 9, 2017