With natural gas showing to be a flexible and reliable energy source the global gas demand has been growing for the last decades. The primary demand for natural gas comes from the power, industrial, residential, commercial and transportation sectors. The power sector is the largest component of the global demand, but there is an on-going change where the industry and commercial sector has been provid-ing most of the growth in global demand. The demand from the power sector is expected to gradually decline because of relative prices to substitutes and emission costs. The growing global demand the last years have largely been coming from Asia where China has drastically increased their import levels of natural gas to reduce the amount of smog in their cities, and the Fukushima incident has made Japan compelled to replace nuclear energy with natural gas in their energy mix.[25]
2.3.1 Weather
The demand for natural gas is heavily affected by the weather, especially for the residential sector. This is because most of the natural gas consumed by the
resi-2. NATURAL GAS MARKETS
Figure 4: Natural gas demand by region (in billion cubic meters).[24]
dential sector is used for heating and cooling purposes. Cold winters will increase the amount of heating needed and therefore increase the demand. A warmer winter on the other hand will have less need of heating and will lower the demand. A mild winter can therefore counteract the coming price increase if there is a supply shortage going into the winter. This is in fact what happened during the winter of 2005/2006 in the US market after the hurricane destructions.[17]
2.3.2 Substitutes and Greenhouse Gas Emissions
Other than for heating purposes, natural gas is a major resource for the industrial and power sector. However, natural gas competes with other energy sources that can be used in production processes and for electricity production. The demand is therefore decided by the relative prices of these substitutes8. Furthermore, the world is trying to move towards a greener energy mix to accommodate the problems with global warming. In Europe there is therefore an extra cost 9 with using resources
8Substitutes such as coal and renewable energy sources.
9Extra cost related to the European Union Emissions Trading System (EU ETS)
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that contribute to increased emission of greenhouse gases. This cost affects the cost of using gas fired generators relative to for instance coal fired generators for power production. Since coal emits considerably more carbon dioxide than natural gas, a gas fired generator will be favored in terms of greenhouse emission costs.
However, in the same way that natural gas is a cleaner resource than coal, there are resources that are cleaner than natural gas. The primary contenders here are nuclear and renewable energy. Even though natural gas holds a major share in most countries energy mix there are examples where nuclear and renewable energy has reduced the demand for natural gas in the power sector significantly: The major source of energy for electricity production in Germany is renewable energy[26], while France is dominated by nuclear energy with natural gas having a small share[27].
Nevertheless, it is believed that natural gas will have an important role in the transition stage to a low-carbon fueled society. Future energy outlook reports see most countries increasing the amount of natural gas while reducing other fossil fuels in their energy mix, thus indicating further increase in the global demand for natu-ral gas.[28] We also see the tendency of natunatu-ral gas being the preferred alternative energy source when a primary source fails in some way: When hydropower had a bad year in 2017 due to weather problems, natural gas demand increased in Europe.
China is as mentioned trying to get rid of their smog filled skies and are changing from coal-fired to gas-fired generation. China alone stood for 30 % increase in global demand for natural gas in 2017.[25]
2.3.3 UK and US Demand
The residential and power sectors consume the most natural gas in the UK. The industrial sector follows as third. The UK is the third biggest consumer of natural gas in Europe but cannot meet their demand through their own production. They are therefore dependent on importing almost half of their demand and about 44 % of the import is supplied by Norway and Russia through pipelines. They are connected
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to continental Europe through the Interconnector pipeline.[24]
The demand composition in the US is somewhat different with the residential sector coming third after the power and industrial sector. Natural gas demand for 2017 fell with 8 % in the power sector, which comes from the fact that natural gas prices increased, and the demand was therefore squeezed by renewables and coal.
The US is the biggest consumer of natural gas and used to have high level of import.
However, because of the relatively recent shale gas revolution and the abundance of shale gas, they have become rather self-sufficient and the import levels have fallen.
The small amount they do import comes through pipelines from Canada.[24]