EY presented at the 22 World Petroleum Congress, focusing on the various drivers, challenges and risks limiting current gas demand.

1. Creating new
demand for gas
Andy Brogan
EY Global Oil & Gas
Transactions Leader
Ernst & Young LLP, UK

2. Page 2 Creating New Demand for Gas
Global gas demand is projected to decelerate to 1.3%–2% CAGR during 2015–2040 vs.
2.3% CAGR in the last 25 years.
Competition from coal and renewables is limiting growth in power generation, the
anchor segment for gas use.
The global LNG market is oversupplied and is not expected to rebalance
until the mid-2020s.
LNG prices are at record-low levels due to oversupplied global market and
depressed oil prices.
Lack of policy support in many countries has rendered gas use unviable.
Strong need to develop new applications of gas
1
2
5
3
4

3. Page 3 Creating New Demand for Gas
Various factors, including availability, affordability and state
policy, drive gas use
1
Availability
The shale gas revolution
in the US boosted gas
availability across
industries.
3 5 7
Awareness
Customer awareness
about economic and
environmental benefits of
gas and new applications
in their industry will
promote gas use.
2
Switching costs
Recently, low LNG prices
have stoked demand and
brought new importers
(e.g., Pakistan, Jordan)
to the market.
4
Carbon pricing
Introduction of carbon
pricing in some countries
(e.g., the UK’s power
generation) has helped
coal-to-gas switching.
6
Government policy
Favorable government
policies will encourage
gas use even in
emergent segments
(e.g., LNG transportation
in China).
Infrastructure
Availability of
infrastructure to import
and distribute gas could
drive consumption growth
in many emerging
countries.
Ease of operations
Gas became a preferred
fuel in many applications
due to its versatility,
efficiency, dispatchability,
and quick response time.

4. Page 4 Creating New Demand for Gas
Challenges and risks limiting gas demand growth in power
generation
According to the IEA, the global demand for electricity
will likely grow at
compared to 2.3% CAGR in the 1990–2014 period.
during the 2014–2040 period
1.3% CAGR
LCOE^ (US$/MWh) for projects completed in 2015
Sluggish growth in power demand
Gas is uncompetitive with coal (specially in Asia) and
some renewables despite low prices.
Growing competition from alternative fuels
^LCOE = Levelized cost of electricity; * CCGT = Combined Cycle Gas Turbine
Source: EY analysis of IEA data
India
Critical coal1
Hydro2
Gas CCGT*3
China
Critical coal1
Geothermal2
Gas CCGT*3
EU
Geothermal1
Gas CCGT*2
Critical coal3
Geothermal1
Gas CCGT*2
Critical coal3
US

5. Page 5 Creating New Demand for Gas
Challenges and risks limiting gas demand growth in power
generation
► Gas-fired power plants require more, sophisticated
and capital intensive infrastructure, than
coal-fired ones.
► In many countries, infrastructure to import and deliver
LNG to a gas-fired power plant may cost more than
the plant itself.
Lack of infrastructure to deliver gas
► Regulatory support (subsidy, tax credits and project
funding) is accelerating adoption.
► Total installations are expected to grow by
► The cost of Li-ion batteries will likely decline by more
than 47% CAGR during the same period.
during the 2016–2021 period.
44% CAGR
Substantial improvements in battery storage

6. Page 6 Creating New Demand for Gas
Strong prospects across other sectors: industrial
► Growth more likely in gas-rich regions with
affordable prices.
► Transition to consumer-led growth
(outside the US).
► Gas demand will be more confined to
industries that require high heat that
electricity cannot deliver (e.g., steel
production).
► Lack of transportation and distribution
infrastructure.
► Versatile roles of gas — feedstock, fuel for
heating and power generation.
► Increased availability of low-cost shale gas
in the US transforming gas-based chemicals
production globally:
► More than 100 million metric tons of new shale
gas-based chemical production to be added
by 2025.
► The US projected to transition from a major net
importer of methanol to a major exporter
by 2018.
Industrial
Competing
fuels/feedstock:
coal, electricity,
refined oil products
Key drivers Challenges/Risks

7. Page 7 Creating New Demand for Gas
Strong prospects across other sectors: transport
► Lack of refueling infrastructure
► Competition from alternatives (e.g.,
scrubbers and premium low-sulfur fuel oil) to
limit sulfur emissions in marine transport
► Prolonged low oil prices eroding economic
viability of gas as a transport fuel
► Rapid improvements in battery technology
► Emergent LNG transport markets such as
medium and heavy duty road transport,
and marine
► IMO regulation to limit sulfur emissions to
0.5% by 2020, down from 3.5% currently
► Stringent anti-pollution measures driving
CNG and LNG use in transportation
(e.g., China, India)
Transport
Competing fuels:
Refined oil products,
electricity
Key drivers Challenges/Risks

8. Page 8 Creating New Demand for Gas
Need to walk the extra mile to fully realize the demand
potential of growing markets
Nascent marketsEstablished markets Rapid-growth markets
► Partner with local industry for R&D and
roll out of new gas applications beyond
conventional ones.
► Integrate downward: set up liaising
offices, collaborate with local gas
players and utilities.
► Lower costs to remain competitive.
► Play a greater role in developing gas
infrastructure.
► Use low-cost, mobile infrastructure
(e.g. FSRUs, LNG trucks and mobile
refuelling units).
► Partner beyond core sector to deliver
packaged and customized solutions.
► Start with pilot projects to improve gas
supply and develop market.
► Use JVs/alliances to share capital and
mitigate risk.
Despite low stand-alone returns, downstream
operations help secure gas placement and
actively push gas volumes downstream,
thereby improving overall returns.

9. Page 9 Creating New Demand for Gas
Alternative sources and creative solutions could help
overcome financing challenges
Federal/State government
Infrastructure funds/investment trusts
Regional development banks
FSRU providers
Consuming sectors
Domestic NOC
Oil majors
Foreign governments, NOCs or banksSponsors
of gas
infrastructure
New sponsors made viable
through small, low-cost and
integrated projects.

10. Page 10 Creating New Demand for Gas
For more information on all of EY’s oil and gas
insight visit
ey.com/oilandgas

11. Page 11 Creating New Demand for Gas
Andy Brogan
Author biography
EY Global Oil & Gas Transactions Leader
Ernst & Young LLP, UK
Andy Brogan is the Global Oil & Gas Transactions Leader for Ernst & Young
LLP, the UK EY member firm. Andy has been with the member firm for 28
years and has advised oil and gas companies on a variety of public and
private transactions covering both upstream and downstream operations in
more than 30 countries.

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