Global Gas Projections: the Potential Impact of Unconventional Gas Production in the United States and China. Dr Brian Fisher

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1 Global Gas Projections: the Potential Impact of Unconventional Gas Production in the United States and China Dr Brian Fisher Presenta.on to the Global Energy Technology Strategy Program Workshop: Abundant Gas, HyaC Regency, Cambridge MD, April 15-17, 213

2 Economic assessment of the impact of increased gas production Purpose and contents of the analysis Purpose of the analysis: The analysis seeks to estimate the affect of increased gas production globally and on both the United States and China Contents: Background Modelling framework Modelling assumptions Business as Usual projections Scenario comparisons Conclusions

3 Background

4 World natural gas reserves are large enough to meet 23 years of demand at currently projected rates of use World natural gas reserves: remaining recoverable resources (211; tcm) Source: IEA (212) World Energy Outlook. World natural gas reserves estimated to be 79 tcm (53 per cent conventional; 47 per cent unconventional) Enough to meet at least 1 years of demand (world gas production in211 was 3.28bcm). Current largest consumers: United States (21 per cent) Russia (14 per cent), Iran (4 per cent), and China (3 per cent). Gas accounts for 21 per cent of the global primary energy demand, after oil and coal. Role of a short- term bridge fuel and potential to displace coal in electricity generation and reduce emissions. Asia- Pacific and North- America account for almost half of the world unconventional gas reserves.

5 North America and China have the largest unconventional gas resources Remaining recoverable resources by type 15 leading countries Source: IEA (212). Golden Rules for a Golden Age of Gas, World Energy Outlook Special Report on UnconvenGonal Gas. Nearly half of the world natural s gas reserves are from abundant unconventional recoverable resources: shale gas (2 tcm); tight gas (81 tcm); coal seam gas (47 tcm). The two largest holders of remaining resources of unconventional gas, are China and the United States, and the two account for approximately 45 per cent of the world s unconventional gas resource. Production of unconventional gas is more energy- intensive and requires more infrastructure, venting or flaring, and the construction of more wells for the same quantity produced. Due to environmental concerns and cost the extraction, unconventional gas production remains limited in most regions.

6 Inter- regional trade is expanding via both pipeline and LNG transport networks Projected natural gas trade movements (bcm) Source: IEA (212) WEO. New policies scenario: current policies are maintained and new policy commitments are included. At present, most of the trade occurring is via pipelines. By 23-35, inter- regional trade is expected to increase by 8 per cent, faster than demand (5 per cent). Over the same period, the share of LNG in inter- regional trade is forecasted to reach 5 per cent, currently 3 per cent. New production sites, competition between and within countries, and trade flows taking new directions. Both existing pipeline transport networks and LNG trade are expected to expand. БҮХ ЭРХ ХУУЛИАР ХАМГААЛАГДСАН 212, ОЮУ ТОЛГОЙ ХХК COPYRIGHT 212 OYU TOLGOI, ALL RIGHTS RESERVED 6

7 Modelling framework

8 Modelling framework for BAEGEMv2 BAEGEMv2 is a dynamic multi- region, multi- sector computable general equilibrium (CGE) model developed by BAEconomics. BAEGEMv2 is capable of simulating economic scenarios over a long time horizon. Each time step in BAEGEMv2 is one year. Demand for commodities in the model is determined by the social accounting matrices of the modelling regions, the prevailing economic conditions and policy settings. The BAEGEMv2 database is based on various sources. The core database is based on the GTAP v8 database with a base year of 27. The GTAP v8 database covers 129 countries/regions across the world and 57 commodity groups. BAEGEMv2 expands the GTAP commodity groups to 71, including black coal, brown coal, coking coal, iron ore, bauxite, copper ore, uranium, gold, titanium, zirconium, alumina, coke, nuclear fuel, aluminium and copper. For the ease of simulation, the BAEGEMv2 database was aggregated into 13 economies and 23 commodities for this application.

9 In BAEGEMv2 the world is divided into 13 economies for this research 1. United States 8. Japan, Korea and Taiwan 2. Canada 9. Australia 3. EU27 1. Rest of Asia 4. Russia 11. Central and South America 5. Rest of Europe 12. Middle East and North Africa 6. China 13. Sub- Saharan Africa 7. India

10 In BAEGEMv2 each economy is divided into 23 production sectors for this research 1. Thermal Coal 13. Forestry and Fishing 2. Coking Coal 14. Processed Food 3. Oil 15. Chemicals, rubber and plastic 4. Gas 16. Non- metallic minerals 5. Electricity 17. Iron and Steel 6. Nuclear fuel 18. Non- ferrous metal 7. Petroleum fuel 19. Other Manufacturing 8. Coke 2. Construction 9. Iron Ore 21. Land transport 1. Other metallic minerals 22. Water and Air Transport 11. Crops 23. Services 12. Livestock

11 Modelling assumptions

12 Two illustrative scenarios are developed for this exercise Two scenarios, the central gas case and the abundant gas scenarios, are developed in this exercise to illustrate the implications of increased gas production in China and the United States from 213 to 25, in which no post- Kyoto international agreement on greenhouse gas mitigation is implemented. 1. Real GDP United States Real GDP grows by an average of 2.6 per cent a year from 211 to 22, slowing to 2.3 per cent a year from 221 to 235 and 2. per cent a year from 236 to 25. China Real GDP grows by an average of 7.5 per cent a year from 211 to 22, slowing to 4.5 per cent a year from 221 to 235 and 2.7 per cent a year from 236 to Popula8on 3. Renewable and CCS technologies Grows by an average of.8 per cent a year from 211 to 22, slowing.7 per cent a year from 221 to 235 and.5 per cent a year from 236 to 25. United States popula.on reaches 43 million by 25. China popula.on peaks at 1.4 billion in 225 and falls to 1.3 billion by 25. Moderate improvement in unit genera.on costs with unit genera.on costs remaining higher than fossil fuel technologies by 25. CCS technology is not commercially viable before GHG mi8ga8on policy No post- Kyoto interna.onal agreement on greenhouse gas mi.ga.on is implemented by 25.

13 Additional assumptions The central gas case and the abundant gas scenarios share some common assumptions but there are differences in the following areas. Central gas case Abundant gas 1. Energy policy Reference case Domes.c energy policies in China and the United States are strongly oriented toward increasing natural gas produc.on. 2. Technology progress in gas produc8on Reference case with small addi.onal gas produc.on in the United States Technological progress in the United States and China gas sectors is faster, increasing produc.vity and reducing produc.on costs of conven.onal and unconven.onal gas in both countries. Produc.vity increases.15 per cent a year faster in the United States gas sector and.2 per cent faster a year in the Chinese gas sector.

14 Projections for the central gas case

15 Global GDP growth is driven by developing economies Average annual GDP growth rate 8 Per cent USA EU27 Russia China India JKT Australia Rest of Asia MENA The world real GDP is projected to grow by an average of 3.2 per cent a year from 211 to 22, slowing to 2.9 per cent a year from 221 to 235 and 2.4 per cent a year from 236 to 25. Developing economies, particularly China and India, continue to grow faster than developed economies. China is projected to grow considerably slower from the mid- 22s. United States is assumed to have moderate population growth between

16 Developing economies will drive global population growth Average annual population growth rate Per cent USA EU27 Russia China India JKT Australia Rest of Asia MENA The world population is assumed to grow by an average of 1.1 per cent a year from 211 to 22, slowing.8 per cent a year from 221 to 235 and.5 per cent a year from 236 to 25. The world population reaches 9.3 billion by 25. China s population is assumed to peak in around 225. India is expected to overtake China as the most populous country in 221. Developing economies, particularly those in Africa and Asia, will drive global population growth to 25. Most developed economies will continue to exhibit some population growth, but at lower levels than developing economies.

17 Global gas production is driven by the Middle East, United States and Russia Gas production central gas case 1,6 bcm 1,4 1,2 All regions 6, bcm 5, World total 1, 4, 8 6 3, 4 2, USA EU27 Russia China 1, India MENA Rest of Asia Australia Global gas production is projected to grow to approximately 425 bcm by 23 and to 55 bcm by 25. Whilst most regions will experience an increase in natural gas production, EU27 production is assumed to decline.

18 Global greenhouse gas emissions are projected to grow strongly to 25 Greenhouse gas emissions central gas case Gt CO2- e All regions Gt CO2- e 65 6 World total USA EU27 Russia China India JKT MENA Australia Without a post- Kyoto international agreement, global greenhouse emissions (CO2 equivalent terms) are projected to grow strongly to 25. Developing economies such as China, India, the Middle East and North Africa are the main drivers of this emissions growth. China is the largest emitter of greenhouse gases. This is driven by the large share of coal in the fuel mix.

19 Coal remains the dominant fuel in the global electricity technology mix World technology mix in electricity central gas case 45, TWh 4, 35, 3, 14% 11% 25, 2, 32% 15, 1, 5, 34% Coal Oil Gas Nuclear Hydro Wind Solar, Biomass & Others Coal is currently the dominant fuel in the global energy mix. Gas accounts for approximately a quarter of global electricity generation, though this is projected to steadily increase t 32 per cent by 25. The hydro and nuclear share of global electricity generation are projected to remain at approximately 14 per cent and 11 per cent respectively.

20 Coal remains the dominant fuel in the electricity generation mix in both the United States and China Technology mix in electricity in the United States and China central gas case United States China Per cent 8 7 Per cent Coal Gas Nuclear Hydro Renewables Coal Gas Nuclear Hydro Renewables Gas currently accounts for a quarter of United States electricity generation Coal is the dominant fuel for electricity generation in China. Gas has the third largest share, behind hydro, but is relatively insignificant compared with coal. The share of gas in both countries fuel mix is projected to increase steadily

21 Scenario comparisons

22 Gas production increases in both the United States and China in the abundant gas scenario Gas production in the United States and China abundant gas scenario United States gas production Chinese gas production bcm 1,6 1,4 1,2 bcm 1,2 1, 1, Reference Central gas case case Alternative Abundant scenario gas scenario Reference Central gas case case Alternative Abundant scenario gas scenario In 23, United States gas production is around 2 per cent higher under the abundant gas scenario compared with the central gas case. Most of the increase comes from shale gas production. By 25 total gas production in the United States is around 4 per cent higher under the abundant gas scenario. In 23, China gas production is around 6 per cent higher under the abundant gas scenario compared with the central gas case. By 25 it is around 12 per cent higher.

23 Production growth rates CAGR CAGR CAGR United States (Central) (Abundant) EU27 Russia China (Central) (Abundant) India MENA Rest of Asia Australia In the abundant gas scenario, United States production reaches 96 bcm in 23 and 132 bcm in 25. China s gas production reaches 49 bcm in 23 and 94 bcm in 25 in the abundant gas scenario.

24 Coal is the main fuel displaced by the increased gas share in the electricity mix Coal production in the USA and China comparison of scenarios US coal production China coal production 6 3, mtoe 5 mtoe 2,5 4 2, 3 1,5 2 1, Central Reference gas case Alternative Abundant gas scenario Central Reference gas case Abundant Alternative gas scenario Coal is the main fuel displaced by the increased shale gas production under the abundant gas scenario Thermal coal is not the only fuel displaced in the electricity sector, nuclear and renewables are also displaced to some extent. Coal production in the United States in 25 is 3 per cent lower under the abundant gas scenario. Coal production in China in 25 is 17 per cent lower under the abundant gas scenario.

25 Increased gas production results in a growth of electricity generated by gas technology in both the United States and China Share of electricity generated by gas technology comparison of scenarios Per cent 6 5 United States Per cent 6 5 China Reference Central gas case Alternative Abundant gas scenario Reference Central gas case Alternative Abundant gas scenario The additional gas production in both countries is accompanied by an increase in the share of gas in the electricity fuel mix.

26 Enhanced gas production reduces greenhouse gas emissions in both the United States and China to a limited extent Greenhouse gas emissions in the United States and China comparison of scenarios United States greenhouse gas emissions Chinese greenhouse gas emissions 16 Gt CO2- e Reference Central case gas Alternative Abundant High Gas scenario case gas scenario 16 Gt CO2- e Reference Central gas case Alternative Abundant High Gas scenario case gas scenario United States greenhouse gas emissions are 2 per cent lower in 23 and 2.5 per cent lower in 25 under the abundant gas scenario. China s greenhouse emissions are 2.5 per cent lower in 23 and 4.5 per cent lower in 25.

27 Global greenhouse gas emissions exhibit strong growth, in both scenarios Global greenhouse gas emissions Gt CO2- e 7, 6, 5, 4, 3, 2, 1, Reference Central Case gas case Alternative Abundant scenario gas scenario In either scenario, global greenhouse emissions grow strongly. Global greenhouse emissions in the abundant gas scenario are 1 per cent lower in 23 and 1.5 per cent lower in 25. Therefore, the large increase in gas production in the United and China does little to curb greenhouse gas emissions on a global level.