Golden age for natural gas predicted by IEA

Current glut projected to end by 2015

By Henning Gloystein, ReutersJune 6, 2011

LONDON - Increasing gas supplies from unconventional sources could encourage demand to rise to levels exceeding coal by 2030 and coming close to oil by 2035 if certain conditions are met, the International Energy Agency (IEA) said.

If governments introduce sound environmental regulation and companies implement what the IEA calls golden standards of practice around unconventional production, gas could become so important that the world could enter a "golden age of gas," the IEA said.

Under such a scenario, "ample supply, robust emerging markets and uncertainty about nuclear power point toward a prominent role for gas," in which over 25 per cent of global energy demand is covered by gas by 2035, the IEA said in a gas report published in London on Monday.

"If these conditions are met, the IEA expects global gas demand to overtake coal before 2030, and come close to oil around 2035," said the agency's chief economist, Fatih Birol.

Under those conditions, the IEA said it expected global gas demand to grow by an average of 2 per cent a year, compared with a 1.2 per cent growth in annual total energy demand.

Birol said this increase would end the current gas glut by 2015, by which time demand would begin to outstrip supply.

Under the new scenario, the IEA expects Europe's import price for natural gas to rise from $7.40 per million British Thermal Units (MBtu) to $9.00 in 2015, to $9.50 in 2020 and beyond $10 per MBtu by 2030.

The IEA expects the boom in gas demand to result from a sharp increase in unconventional gas production mainly in China, Australia and North America, and from a decline in global nuclear power generation as a result of the nuclear incident at Japan's Fukushima Dai-ichi plant earlier this year.

The report said around 40 per cent of the increase in global gas production between now and 2035 will come from unconventional gas exploration, such as fracking shale gas or exploiting coalbed methane gas, also known as coal seam gas.

According to the energy agency, the impact of Fukushima will significantly curb the rise in nuclear power generation, with gas stepping in to fill the gap.

"It is still premature to assess in detail the full implications of the Fukushima accident, but it is already clear that it will result in early retirements and delayed or cancelled investments in new reactors," said Nobuo Tanaka, the IEA's executive director.

According to the IEA, the significant drivers of gas growth will be China's 12th five-year plan, which envisages a steep increase in gas generation, as well as rising demand from gas-powered transport vehicles, especially in the United States and India.

Birol said that China's gas growth is motivated by local environmental concerns.

"Worldwide, 16 out of the 20 most polluted cities are in China, largely related from coal power plant pollution, and for this reason, China is pushing for gas to replace a lot of coal power production," he said.

In the United States, Birol said that "60 per cent of coal power plants will retire in the next 20 years due to old age, and there is a strong chance that a large proportion will be replaced by gas."

Birol said, "China currently consumes about as much gas as Germany, but in 2035 it will be more than the OECD total."

He added that "if our gas scenario takes place, the rise in global gas use will be around 600 billion cubic metres, the equivalent of one Russia (in current gas output)."

The IEA report said non-OECD countries would account for 80 per cent of global demand growth and that by 2035 China will use over 600 billion cm of gas.

India is expected to use over 200 billion cm of gas by 2035.

The IEA said it expected Australia to become one of the world's top exporters of liquefied natural gas (LNG) by 2020, catching up with current leader Qatar.

Birol said that "global gas resources exceed 250 years of current production."

But the IEA said that while gas will increasingly replace highly polluting coal and oil power generation, its steep rise will also come at the cost of low-carbon technologies such as nuclear and even renewable power generation.

Birol said, "This will not make it easier for the world to achieve its target of preventing average global temperatures from rising by more than 2 degrees Celsius."

Instead, Birol said, the IEA's gas scenario could lead to a 3.5 degree increase, a rise that he said the IEA finds unacceptable.

The revised figure of global CO2 equivalent emissions in 2035 as a result of the increased gas demand is a mere 0.5 per cent reduction, or 160 million tonnes, the agency said.

To meet the world's stated climate target, Birol said, "we will need more energy efficiency, more renewable and nuclear power and, if possible, carbon capture and storage technology."

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