FAQs: Natural gas

What is natural gas?

Natural gas is a mixture of several hydrocarbon gases, including methane (between 70%
and 90%), ethane, propane, butane and pentane, as well as carbon dioxide, nitrogen and
hydrogen sulphide. The composition of natural gas can vary widely, depending on the gas
field. Natural gas is referred to as wet when hydrocarbons other than methane are present,
dry when it is almost pure methane, and sour when it contains significant amounts of
hydrogen sulphide.
Does the IEA analyse the gas market?
Yes. The IEA publishes regular medium- and longer-term analysis of the outlook for gas
markets, based on the extensive data that it collects on consumption, production, trade and
prices.

The longer-term analysis, currently to 2035, is included in the annual World Energy
Outlook (WEO), which contains detailed projections and analysis broken down by
fuel, sector and country. In response to supply and demand factors increasingly
pointing to a future in which natural gas plays a greater role in the global energy mix,
a special WEO reportwas published in 2011 on the prospects for natural gas, which
addressed the question "Are We Entering a Golden Age of Gas?". This report
examines the key factors that could result in a more prominent role for natural gas in
the global energy mix, and the implications for other fuels, energy security and
climate change. The report presents a scenario in which global use of gas rises by
more than 50% from 2010 levels and accounts for more than one-quarter of global
energy demand by 2035. However, it also strikes a cautious note on the climate
benefits of such an expansion, noting that an increased share of gas in the global
energy mix is far from enough on its own to put the world on a carbon emissions path
consistent with a global temperature rise of no more than 2C. A second special
report will be released in May 2012 looking at the environmental impact of

unconventional gas production, including an analysis of the "Golden Rules" needed

to support a potential "Golden Age of Gas".
There is also a detailed annual report on gas, called the Medium-Term Gas Market
Report (MTGM), that analyses the latest trends in global gas markets,
examines investments trends in different parts of the gas value chain, and provides
supply, demand and trade forecasts over the upcoming five years. The report also
looks in detail at the development of liquefied natural gas (LNG) trade, prices and
unconventional gas.
How much gas is consumed worldwide?
Global gas demand was estimated at 3 427 billion cubic metres (bcm) in 2012, up 2% from
2011 levels. Gas demand has increased by around 800 bcm over the last decade, or 2.8%
per year. Gas has a 21% share in the global primary energy mix, behind oil and coal. For
comparison, 50 billion cubic meters (bcm) of natural gas is roughly equivalent to 7% of the
USs consumption in 2012, or slightly more than Turkeys entire annual consumption in 2012.
In terms of volume, 50 bcm could fill roughly 20 million Olympic swimming pools.
Which countries are the largest consumers and producers?
The United States, Russia, Iran and China are the worlds largest consumers of gas. The
largest producers are Russia, the United States, Canada and Iran. It is important to note

that Chinese gas consumption almost doubled over 2007-12 to reach around 150
bcm, while US gas production gained 25% over the same period to reach 681 bcm.

How much gas is there in the world?

Analysts mostly tend to refer to proven gas reserves, i.e. volumes have been discovered and
can be produced economically with existing technology at current gas prices. Worldwide
proven gas reserves are estimated at around 190 trillion cubic metres (tcm) or about 56
times current annual global gas production. However, recoverable gas
resources, i.e. volumes that analysts are confident will be discovered or technology
developed to produce them, are much larger, with recoverable conventional resources

estimated at around 400 tcm. Recoverable unconventional resources are slightly lower.
Altogether, this would last around 220 years, based on current rates of gas consumption.
How is consumption and production of gas measured?
Worldwide, many different units are used by countries, which sometimes make it difficult to
reconcile data. At the IEA, natural gas statistics are given in billion cubic metres (for volume),
and in Terajoules (for energy). Worldwide, units such as kilowatt hours (kWh), kilocalories
(kcal), Million British Thermal Units (MBtu or MMbtu), therms (th), million tonnes of oil
equivalent (mtoe), billion cubic feet (bcf) or billion cubic feet per day (bcf/d) are used. Data
on liquefied natural gas is given in tonnes or in bcm. It is worth noting that one cubic metre of
LNG has much more energy than one cubic metre of gas at atmospheric pressure, due to
the different physical states (i.e. one is in gaseous form, and one is a liquid). A basic
conversion tool can be found on the IEA website.

In which sectors is natural gas consumed?

Natural gas is traditionally consumed in the residential and commercial sectors,
mostly for heating, in the industrial sector sometimes industrials such as fertiliser
producers use natural gas as raw material, and in the power sector. The power
sector is by far the largest user of natural gas with around 40% of global gas demand
as the fuel contributes to meeting incremental power demand and produces less
CO2 than coal. Industrials use roughly 24% of total gas consumption and the
residential/commercial sector 22%. Other uses include own use by the energy
industry (10%) for example by GTL plants and losses. A more recent and rapidly
developing sector is that of transport, which is expected to represent 9% of
incremental demand over 2012-18 reaching almost 100 bcm by 2018 or 2.5% of total
gas use. TheMedium-Term Gas Market Report 2013 focused on this particular
sector.
What is LNG?
Liquefied natural gas (LNG) is natural gas that has been liquefied for transport (very often by
ship and sometimes by truck). Depending on its exact composition, natural gas becomes

liquid at approximately -162C at atmospheric pressure. This liquefied state enables the
natural gas to be shrunk to 1/600th of its original volume. To be transported, natural gas is
first liquefied in a LNG liquefaction plant. This requires all heavier hydrocarbons to be
removed from the natural gas, which leaves only pure methane. Then it is transported in
specialised LNG carriers. The largest LNG carrier, called Q-Max, can transport 264 000 m3
of LNG (or around 0.15 bcm). Finally LNG is re-gasified. LNG trade represented around 320
bcm, or 9% of global gas demand in 2012.
Who are the largest producers and consumers of LNG?
The largest producer of LNG is Qatar, whose liquefaction capacity is roughly one-quarter of
global LNG liquefaction capacity as of late 2013. Qatar saw a massive expansion of its
capacity, which has increased by 63 bcm since early 2009 to reach 105 bcm. Indonesia,
Malaysia, Australia and Algeria are also significant LNG exporters. Russia and Yemen began
exporting in 2009, Peru in 2010 and Anglola in 2013. Papua New Guinea is expected to start
exporting in 2014. Australia is set to become the second largest LNG exporter behind
Qatar by 2016 seven projects are currently committed or under construction, representing
over 80 bcm of new capacity.
What are unconventional sources of gas?
Unconventional sources of gas are trapped underground by impermeable rocks, such as
coal, sandstone and shale. There are three types of unconventional gas: shale gas (found in
shale deposits); coal bed methane, or CBM also known as coal seam gas (CSG) in Australia
(extracted from coal beds); and, tight gas (trapped underground in impermeable rock
formations).
How is unconventional gas produced?
While different techniques are applied, depending on the type of gas being extracted, one
common method is hydraulic fracturing (also known as fracking): a well is drilled, and large
volumes of water (mixed with some sand and chemicals) are injected underground under
high pressure to create cracks in the rock which remain open. This frees the trapped gas
allowing it to flow into the well bore so it can be produced. Another key technology is

horizontal drilling which enables the well to penetrate significantly more rock in this gas
bearing strata, increasing the chances of gas being able to flow into the well.
For how long has unconventional gas been produced?
In the United States, tight gas has been produced for more than four decades and coalbed
methane for more than two decades. Production of shale gas in the United States began
much more recently, and has rapidly increased from 2005 onwards. In 2012, shale gas
represented over a third of United States gas production.

If unconventional gas has been known about for so long, why the recent
interest?
Technological advances over the last two decades, particularly concerning hydraulic
fracturing, and soaring gas prices in the early 2000s prompted drillers in the United States to
pursue development of unconventional gas types more vigorously. The impressive growth in
production in the United States over the last few years has actually led to a significant
decline in gas prices, but output still remains robust and other countries have been prompted
to explore whether they could enjoy similar results. Importing countries are keen to explore
this, because if they are able to produce significant volumes of unconventional gas, they
would have greater energy security and more energy independence reducing a countrys
reliance on costly energy imports. Alternatively some producers would be able to export
more gas.
How much unconventional gas is currently produced?
As of 2012, unconventional gas production reached an estimated 18% of global gas
production (MTGM 2013). The majority comes from North America, with around 550 bcm
produced in 2012, half of which is tight gas. Throughout the rest of the world, coalbed
methane production is estimated at approximately 13 bcm and tight gas at 70 bcm. Shale
gas output increased by a factor of 13 over the last decade, to reach just under one-half of
total unconventional gas production in 2010. However, as of 2013, shale gas output was still
concentrated in the United States.
What impact has the United States success had on the global market?
As recently as 2008, it was widely viewed that import requirement for LNG in the United

States was likely to increase over the coming decades. However, soaring unconventional gas
production led to a sharp drop in import requirements and a sharp revision of expectations
for the United States in the international gas trade. The recent slump in LNG imports in the
United States has had a significant impact on global gas markets. Following the global
economic crisis in 2008, there was a general drop in global gas demand. The United States
suddenly had no need to buy LNG at a time when ample supplies, mostly from Qatar, were
entering the market. This led to a gas glut where there was more gas on the markets than
was needed and gas spot prices in the United States and in Europe consequently dropped.
Since 2010, global demand has recovered substantially, but LNG imports in the United
States have remained very low due to growth in cheap domestic gas production. As such,
the United States is no longer an attractive LNG market. Additionally, the United States and
Canada are both now considering exporting LNG in the United States, one exporting facility
is under construction while three others have been granted the approval by the Department
of Energy.

Have countries other than the United States made much progress in their
unconventional gas exploration efforts?
Canada already produces tight gas, coal bed methane (CBM) and small amounts of shale
gas. Although years behind the United States, some countries have made notable strides
forward in exploring their own unconventional gas sources. Australia has shown good CBM
potential, which is already being produced in small quantities. But Australias future success
most likely lies in projects that focus on producing LNG from CBM. Three such projects are
committed to start exporting between 2014 and 2016. China, India and Indonesia have also
produced small amounts of unconventional gas and are aggressively looking at ways to
increase their respective volumes, notably China which has very ambitious shale gas targets
- between 60 and 100 bcm by 2020. Despite strong interest throughout Europe, there are
areas of public concern such as high population densities and issues surrounding the
potentially damaging environmental impact which are hampering progress. A few other
countries, such as Argentina, Algeria and Mexico, seem also to large shale gas potential.

What is the recipe for success with unconventional gas production?

To effectively replicate the success story of North America, four core factors must be
addressed:

Geology: In order to identify potentially good areas to drill, access to highquality geological data is essential.

Companies: Companies involved in operations must have first-rate

engineers, a sufficient number of available rigs, and significant experience of
drilling.

Costs: Operations depend highly on the quality of the gas field, leading to a
wide range of costs within the United States. There are still many uncertainties on
how expensive such production would be outside of North America.

Country: Before undertaking such an exercise, a country must assess

whether: a) there is an internal and external market for the gas; b) landowners and
local communities will accept drilling; c) all environmental risks have been taken
into account and addressed; d) the appropriate fiscal and regulatory frameworks
are in place; e) there is an economical way to link the project to pipeline
infrastructure already in place.

Is unconventional gas production bad for the environment?

There are concerns about the environmental impact of unconventional gas production,
notably in terms of land use, water use and the potential for contamination of drinking water,
and methane and other air emissions. In May 2012, a special World Energy Outlook
(WEO) report looked at the environmental impact of unconventional gas production,
including analysis of the "Golden Rules" that are needed to support a potential "Golden Age
of Gas". The United States Environmental Protection Agency (US EPA)is currently
conducting an investigation, the results of which are expected in 2012.
Are natural gas prices linked to oil?
There are different types of natural gas prices wholesale prices (such as hub prices, border
prices, city gate) and end-user prices which differ depending on the customer served

(industrial, or household). Prices typically include the cost of gas supplies, transmission,
distribution and storage costs, as well as retailer's margin and taxes. End-user prices and
wholesale prices vary widely across regions. Some wholesale gas prices are linked to oil
prices, through an indexation present in long-term supply contracts in Continental Europe
and OECD Pacific, but this represents only one fifth of global gas demand. Following the
economic crisis in 2009, lower demand and availability of cheaper sources of gas (LNG),
many long-term contracts have been renegotiated in Europe so that they include now a
partial spot indexation. However, long-term import prices in Asia remain closely linked to oil
prices and stand therefore at much higher levels than in Europe or North America. This is
becoming an issue for many Asian countries which are trying to move away from oil
indexation. Gas-to-gas competition (spot prices) can be found in North America, the

United Kingdom and parts of Continental Europe and represents one third of global
gas demand. However, there is no such thing as a trading hub in Asia and it would
take years to create one as highlighted in an IEA special report Developing a
natural gas trading hub in Asia. Prices in many other regions are often regulated:
they can be set below costs, at cost of service, or be determined politically, reflecting
perceived public needs. The IEA follows mostly the reported market prices in Europe,
North America and the OECD Pacific region.
To what extent can natural gas contribute to meeting CO2 emissions reductions?
While natural gas (which is a lower-carbon fuel relative to other fossil fuels) contributes to
lowering CO2 emissions by displacing coal or oil, an increased share of natural gas in the
global energy mix is not sufficient on its own to put the world on a carbon emissions path
consistent with an average global temperature rise of no more than 2C. To achieve this
target requires a greater shift to low-carbon energy sources, increased efficiency in energy
usage, and new technologies, including carbon capture and storage.