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This report examines the factors that will drive the demand for, and supply of, natural gas in the coming decades, the conditions under which gas could play a far more prominent role in the global energy mix, and the implications that a ‘golden age of gas’ could have for energy markets and the environment.
The factors that drive natural gas demand and supply increasingly point to a future in which natural gas plays a greater role in the global energy mix.
Global uncertainties afflicting the energy sector can be seen as opportunities for natural gas. When replacing other fossil fuels, natural gas can lead to lower emissions of greenhouse gases and local pollutants. It can help to diversify energy supply, and so improve energy security. It can provide the flexibility and backup capacity needed as more variable capacity comes online in power generation. Gas is a particularly attractive fuel for regions such as China, India and the Middle East, which are urbanising and seeking to satisfy rapid growth in energy demand. These are the very regions that will largely determine the extent to which gas use expands over the next quarter of a century.
The global natural gas resource base is vast and widely dispersed geographically.
Conventional recoverable resources are equivalent to more than 120 years of current global consumption, while total recoverable resources could sustain today's production for over 250 years. All major regions have recoverable resources equal to at least 75 years of current consumption. Timely and successful development depends on a complex set of factors, including policy choices, technological capability and market conditions. Once discovered, major gas resources can sometimes take several decades to reach production
Unconventional natural gas resources are now estimated to be as large as conventional resources.
Unconventional gas now makes up about 60 percent of marketed production in the US. Coalbed methane (CBM) development is growing in Australia, while projects in China, India and Indonesia are in the early stages of development. Use of hydraulic fracturing in unconventional gas production has raised serious environmental concerns and tested existing regulatory regimes. Based on available data, we estimate that shale gas produced to proper standards of environmental responsibility has slightly higher "well-to-burner" emissions than conventional gas, with the combustion of gas being the dominant source of emissions. Best practice in production, effectively monitored and regulated, can mitigate other potential environmental risks such as excessive water use, contamination and disposal.
The Golden Age of Gas Scenario (GAS Scenario), departing from the World Energy Outlook-2010 New Policies Scenario--our base case--incorporates a combination of new assumptions that underpin a more positive future outlook for gas.
These are implementations by China of an ambitious policy for gas use, lower growth of nuclear power and more use of natural gas in road transport. Ample availability of gas, much of it unconventional gas, keeps average gas prices below the levels assumed in World Energy Outlook-2010.
The main findings and implications of the GAS Scenario are:
- Global primary gas demand reaches 5.1 trillion cubic metres (tcm) in 2035--1.8tcm more than today and nearly 0.6tcm more than in the World Energy Outlook-2010 New Policies Scenario in 2035.
The share of natural gas in the global energy mix increases from 21 percent to 25 percent in 2035, pushing the share of coal into decline and overtaking it by 2030. While gas demand expands in all regions, non-OECD countries account for nearly 80 percent of the total increase between 2010 and 2035, placing a premium on their adoption of efficient gas-fired technologies. China's gas demand rises from about the level of Germany in 2010 to match that of the entire European Union in 2035. Middle East demand almost doubles, to a level similar to China's in 2035, and demand in India in 2035 is four times that of today. Power generation remains the dominant sector for gas demand and, in the GAS Scenario, gas replaces some coal in power generation in China, India and the US. There is also a broad-based increase in gas demand growth, spanning the industry, transport and buildings sectors.
- An increase in production equivalent to about three times the current production of Russia will be required simply to meet the growth in gas demand in 2035. Global natural gas resources can comfortably supply this demand and sustain supplies well beyond.
All regions have the potential to increase gas production and enhance overall energy security. The largest existing producers are expected to meet much of the increase in demand in the GAS Scenario, but they will be joined by China as it becomes one of the world's largest gas producers, although to satisfy rising domestic demand, imports will also needed. The strongest centres of growth in natural gas production are expected to be the Middle East, Russia, Caspian, North America, China and Africa. Conventional gas will continue to make up the greater part of global production, but unconventional gas becomes increasingly important, meeting more than 40 percent of the increase in demand. Most of the growth in unconventional gas occurs in North America, China and Australia. The complex issues relating to unconventional gas production mean that these projections, especially in regions where little or no such production has been undertaken to date, are particularly subject to uncertainty. Effective, transparent and stable regulatory frameworks are still needed in some regions, particularly for unconventional gas.
- Trade between the main world regions more than doubles, with the increase of around 620 billion cubic metres (bcm) split evenly between pipeline gas and liquefied natural gas (LNG).
Natural gas markets are becoming more global and regional prices are expected to show signs of increased convergence, but the market does not become truly globalised. North America will remain largely self-sufficient and is therefore likely to be essentially isolated from inter-regional trade. China will grow to become one of the largest importers of natural gas globally, as Russia and the Caspian region increasingly export both west and east.
- The different overall global energy mix in the GAS Scenario results in differences in the required type and scale of energy-supply infrastructure. Cumulative investment in gas-supply infrastructure amounts to around US$8 trillion (12 percent higher than in the World Energy Outlook-2010 New Policies Scenario), but there is slightly reduced supply investment in other fuels. In the near term, there is an urgent need to invest in LNG capacity in some regions.
- An increased share of natural gas in the global energy mix is far from enough on its own to put us on a carbon emissions path consistent with an average global temperature rise of no more than 2°C.
Natural gas displaces coal and to a lesser extent oil, driving down emissions, but it also displaces some nuclear power, pushing up emissions. Global energy-related CO2 emissions in 2035 are only slightly lower than those in the New Policies Scenario, at around 35 Gigatonne (Gt). This puts emissions on a long-term trajectory consistent with stabilising the concentration of greenhouse gases in the atmosphere at around 650 parts per million (ppm), suggesting a long-term temperature rise of over 3.5°C. To limit the increase in global temperature to 2°C requires a greater shift to low-carbon energy sources, increased efficiency in energy usage and new technologies, including carbon capture and storage. The GAS Scenario assumes that support for renewables is maintained but, in a scenario in which gas is relatively cheap, there is a risk that governments' resolve in this respect might waiver, pushing gas demand even higher than projected here.
- The pricing of gas relative to other fuels has a strong influence on fuel choice.
At the price assumed in the GAS Scenario, rapidly increasing demand is fully met, but the market progressively tightens and the gas glut identified in World Energy Outlook-2010 disappears before 2015. More gas production--including significant quantities of unconventional gas--becomes available in several regions later in the Outlook period: Our analysis suggests that plentiful volumes of shale gas, tight gas and coalbed methane can be produced at costs similar to those in North America (between US$3-$7 per). Despite increasing international trade of gas in the GAS Scenario, demand and supply developments within regions will remain influential in gas price formation. Steps to make markets more responsive to natural gas fundamentals would improve overall economic efficiency. Subsidies encouraging inefficient gas consumption are an example of policies that can distort markets and reduce efficiency. Increased consistency of regulatory and market regimes across borders will encourage investment in inter-regional pipeline infrastructure and so facilitate trade and competition. Ensuring sufficient gas storage will help dampen market volatility and improve energy security.
This article is from the World Energy Outlook 2011: Are We Entering A Golden Age of Gas?, OECD/International Energy Agency (IEA) 2011, reproduced with permission from the IEA.
By : International Energy Agency