Natural gas supplies from US shale, Russia, Iran and Africa are likely to keep the world well stocked and prices low for the short to medium term. Low prices stimulate demand but supply is outpacing demand. Demand-growth enablers are needed given competition from renewables and lack of infrastructure for natural gas distribution.
In China, where renewables and coal dominate in generation, the transportation and combined heat and power (CHP) sectors are likely to provide major opportunities considering market size, supportive government policies, price sensitivity and supply-side requirements (Figure 1). Despite the price advantage of natural gas in the residential/commercial sector, the supply stability requirement makes it difficult for natural gas to grow in this sector. The residential/commercials sector requires very stable supply compared to CHP which is much more flexible for switching to other conventional sources. The challenges in third-party access to infrastructure and lack of infrastructure in some cases makes ensuring uninterrupted supply of natural gas to residential/commercial sectors difficult.
Figure 1. Transportation and CHP sectors are promising for demand growth in China.
India has had ambitious targets to increase usage, but consumption has lagged due to lack of infrastructure, concerns for supply stability and price. In the power sector, coal is too cheap and renewables too competitive. In the non-generation sector, improving the infrastructure seems a key to stimulating growth. We analysed four liquefied natural gas (LNG) terminals and non-generation demand within feasible trucking distance (less than 750 km). The delivered price would be comparable to natural gas delivered to industrial customers via city gas distribution to smaller industrial and commercial customers. It is only about 20 percent more than delivery through a transmission pipeline to larger industrial units—still viable given the price of the current fuels used. The Kochi Terminal has stranded capacity (approximately 5 percent utilization) due to limited access to gas pipelines, but there is almost nine million tonnes per annum (mmtpa) of demand that could be aggregated (Figure 2).
Figure 2. Analysis of Industrial Demand in Proximity to Kochi, India.
Some 40 countries importing LNG in 2017 compose a growing “tail” of global demand. About 15 percent of the volume is from countries that imported less than three mmtpa in 2015 or 2016. The biggest challenges tend to be infrastructure and access to financing. Fortunately, a number of innovations are supporting growth: floating storage and regasification units FSRUs), smaller shipments and LNG vessels, including ship-to-ship transfers, vessel pooling, increased logistics hubs and services, and virtual pipeline (trucking LNG to smaller customers).
Low prices are finally starting to ignite growth in Europe. Prior to 2015, growth in renewables was offset by gas not coal, and coal consumption increased slightly (while natural gas consumption decreased), accounting for Europe’s modest CO2 decline. Natural gas use should grow with the combination of low natural gas prices driven by US and Russian supplies and European COP21 commitments, driving a carbon price/tax that will make coal more expensive. We are also seeing growth in natural gas use in the transport and marine sectors, but very high volumes are needed to make a material difference given the scale is much smaller.
Replacing coal with natural gas in generation and positioning natural gas as a friend to renewables remain critical, but it will be far from enough if the market is to grow to its full potential. Greater collaboration among producers, marketers and consumers of natural gas is needed. Developing the midstream and natural gas supply chain will require long-term commitment by buyers and sellers to address the challenge of simultaneously growing demand and investing in infrastructure.
 China International Capital (CICC), China Statistic Bulletin, China Gas Association, Accenture interviews and analysis
 Accenture analysis.