1

Trends in global long-term natural gas business development. GECF Global Gas Outlook

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

Conference towards energy security, sustainability and resiliency and associated meetings. Session 2. Natural gas as transition fuel. August 7, 2017

2

• About GECF

• Demand and supply projections

• Climate change and energy developments

• 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

5

Primary energy demand is set to increase by 30% by 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 Gtoe 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%)

Energy Demand to 2040: Key Figures

6 World primary energy demand by fuel (Mtoe)

• World energy consumption is projected to grow by 1% per annum between 2015 and 2040, 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% over the projection period, and 1.6% average growth rate per annum.

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Natural Gas Oil Coal Nuclear Renewables Hydro

7 Regional breakdown of primary gas demand (2015 and 2040) in the GECF Global Gas Outlook 2040

• In the OECD region, natural gas approaches oil consumption as a dominant fuel by 2040 with a share of 32% in primary energy.

• In non-OECD, natural gas remain third most-consumed fuel with a share of around 22%. • Non-OECD Asia accounts for 43% of additional gas demand mainly derived by China and India,

while North America led by U.S., accounts for 19% and Middle East 15%

8 Global gas demand by sector

767 959

630

858 132

376

194

243 1230

2131

191

180

87

102

264

407

0

1000

2000

3000

4000

5000

6000

2015 2040

Other

Refinery

Heating & Cooling

Power Generation

Feedstock

Transport

Industry

Domestic

3494 bcm

+50%

5258 bcm

192

229

245

50

901

-11

15

144

-200 0 200 400 600 800 1000

Incremental gas demand (bcm)

• Gas use is set to increase in power, transport , domestic and industry sectors. • Gas use in power sector is projected to grow by 2.2% per year, which is faster than global gas

demand growth (1.6%). • Transport sector share from global gas demand is expected to increase from 4% today to 10%

by 2040.

9 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

10

Natural gas production capacities by region (bcm)

0%

10%

20%

30%

40%

50%

60%

0

1000

2000

3000

4000

5000

6000

7000Non-OECD Europe

OECD Asia-Pacific

OECD Europe

Latin America

South East Asia

Africa

Non-OECD Asia

Middle East

CIS

North America

GECF%

GECF Members%

0

100

200

300

400

500

600

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

liquefaction capacity (MTPA)

UnderConstruction

Existing

• 340 million tonnes per annum of liquefaction capacity

• 110 MTPA of LNG capacity under construction, leading to an increase of about 40% of the total operating liquefaction capacity in the medium term

• Natural gas production in the world is anticipated to grow on average around 1.9% yearly by the end of 2040

• GECF countries’ share in global gas production capacity is expected to slide slightly

Source: GECF Secretariat based on the data from GECF GGM

Natural gas production and liquefaction capacity outlook

11

GECF view on climate change and energy developments: Some key messages

12 Paris Agreement appeared as a turning point, but achievement of announced commitments will face many

challenges and uncertainties

12

• Release of Marrakesh Action Proclamation

• GHGs reduction momentum was called as “irreversible”

• Announced initiatives for funding and supporting GHGs mitigation and adaptation

Main challenges and uncertainties to meet the targets: • Political issues and support (ex:

The Trump effect, Brexit,); • Lobbying and resistance to

change; • Security of supply priorities; • Growing energy needs; • Funding and affordability

issues; • Economic viability of green

projects; • Non-binding and conditional

commitments; • Implementation of the detailed

agreement mechanisms.

• It involved more than 190 countries;

• Commitments to limit the temperature increase

(Targets: “< 2 °C” and continued efforts to reach “< 1.5 °C ” )

• Intended National Determined Contributions (INDCs) as main mechanism;

Dec. 2015 Nov. 7-18th 2016

• Countries Ratification of PARIS AGREEMENT

• INDCs transformed into NDCs.

Nov. 4th, 2016

NDCs emissions targets for 2030 Horizon ??

COP 21: Adoption of Paris Agreement

Entry into force COP 22: strengthened political support

13 NDCs have set GHGs emissions targets, and some global policy directions, but still large flexibilities on the options and measures to be really implemented

A review of NDCs allows to identify 4 main policy directions and levers to mitigate greenhouse gases emissions

Promoting energy efficiency

Encouraging switching to less carbon intensive fuels in different usages (Natural gas against coal)

Supporting GHGs free energy alternatives (Renewables, Nuclear…)

Promoting carbon sequestration and storage, and also carbon sinks

Large flexibilities still exist on the options and measures to be really implemented by each country to reach its NDCs

commitments

14

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 (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

15

•Good complementarity between gas and renewables; • Good energy performance of gas-based technologies and processes; • Gas is clean, abundant, affordable and allows to improve energy accessibility.

Gas enjoys many advantages making it compatible with sustainable development

CO2 emission by unit of energy consumed (T.CO2/Toe)

- 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50

Natural Gas

Oil

CoalGas emits less CO2 than other fossil fuels, and also less harmful by-products (Particles, NOx, SO2…);

Natural Gas, as cleanest fossil fuel, has to play a key role in this GHGs mitigation efforts

16

• Natural gas is the fuel of choice 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 over the next decades.

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

Conclusion