C.J. Jepma Foundation JIN Meerkoetlaan 30a 9765 TD Paterswolde tel.: +31(0) the Future of the Market for Natural Gas four storylines to 2040

Goal of the study The ultimate goal of the study is to assess what strategic action may be required from international gas market players in order to optimally address the various developments foreseen in the structure, size, and position of the international gas market as a result of the present and possibly changing trend towards more sustainable energy production, use and implementation.

New challenges to the gas industry Can natural gas play an important role as transition fuel towards a carbon free energy system, and how will this work out in the future role of gas on the energy market? Will security of supply of energy issues increasingly dominate public concern, and how may this affect the gas market conditions?

New challenges to the gas industry To what extent may climate change and other environmental and safety concerns affect the trends in fossil fuel and renewable fuel use, and how will this affect the gas market share? Will internationalisation and liberalisation of the gas market lead to more flexible but less predictable gas flows, and to what extent can flexibility in demand be matched by flexibility of supply?

Scenario – World Energy Council

Share of gas in primary energy is scheduled to increase from 19% in 1990 to levels ranging from 22-32% in 2040.

Scenario – IPCC/SRES Envisage a number of possible developments: diffusion of existing technologies and knowledge from the present industrialised countries to the rest of the world, slow technological development industrialised countries strongly shift away from their traditional economic development path: emergence of ‘knowledge’ economies world will follow a new Kondratieff wave leading to enhanced economic growth with new high- technology industries and with opportunities for developing to catch up their development

Scenario – IPCC/SRES

Scenario – IEA

World primary energy demand by fuel (in Mtoe)

Scenario – Shell Primary energy shares in the DaU-scenario

Scenario – Shell (DaU)

Scenario – Shell (SCA)

Four non-traditional storylines the role of gas as a transition fuel in a rapidly greening world security of supply in a world with increasing gas supply - infrastructure constraints other fuels, both traditional (incl. nuclear) and renewable ones, are increasingly successful in increasing their share in overall energy supply the flexibility to generate sufficient swing to serve increasingly volatile demand patterns in a decentralising energy supply world.

Transition storyline Assumptions increasing awareness of climate change risks fast and massive introduction of commercially viable applications of renewable energy the use of green gas (= biomass-based) is strongly promoted decentralized energy systems based on micro CHP, small-scale renewables, and green gas become increasingly popular large-scale biomass plantations are set up, especially in the tropics

Transition storyline Rationale Russian Kyoto ratification, EU ETS starts‘05 potentially catastrophic unstable regime of intermittent abrupt climate change negotiations on the post-Kyoto period regime trade policy measures are increasingly accepted domestic power production based on coal is already being phased out market share of CHP has already increased fairly rapidly in industrialised countries

Security of Supply storyline Assumptions growing concern about the availability of energy oil reserves are depleted the share of renewables remains low, nuclear option under debate, coal is phased out for environmental reasons – gas is strategic option Europe, NAFTA, Japan, China and India increasingly compete for the available gas resources concerns about terrorist attacks regions increasingly try to become less dependent on imports

Renewables growth and boundaries

Gas Imports as a % of total energy consumption

Primary energy demand in terms of solid, liquid, gas or direct electricity

Coal, oil and nuclear storyline Assumptions: nuclear power becomes increasingly fashionable clean coal technologies will take a giant leap forward considerable new supply of oil is generated carbon credits prices per tCO 2 keep fluctuating in the €10-40 range: no trigger for large-scale introduction of renewables concerns about climate change grow less energy prices remain at a fairly modest level (€20- 50/barrel oeq.) natural gas is increasingly facing legislative and regulatory difficulties

Flexibility storyline Assumptions: flexibility by production is increasingly taken over by flexibility in storage and import through LNG politics and policy driven regulatory regimes lead to underinvestment or at least suboptimal investment in gasinfrastructure gas is seen as providing the flexibility needed gas production flexibility is less and less available international conflicts and interventions lead to increasing tensions and regionalised international gas markets.