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Birol fires stark gas warning amid coal's competitiveness

IEA chief economist claims rising coal use presents 'very real threat' to fuel's golden age

The golden age of gas predicted by the International Energy Agency (IEA) two years ago is under threat, particularly from coal's rising competitiveness, warned the energy watchdog's chief economist.

Fatih Birol offered words of caution to the annual gathering of the Australian Petroleum Production and Exploration Association this week. "Not all roads lead to a golden age of gas. There are a number of question marks for gas producers," he told the conference.

The IEA still expects strong growth in gas, but said there will be harsh competition between gas and coal globally.

Birol stressed the relative economics of gas versus coal use will remain an important determinant of future natural gas growth.

If US gas prices hit around $5 per million British thermal units (Btu) - they are around $4.30/m Btu now compared to an average of $2.77/m Btu in 2012 - then coal may well make a come back, the influential economist told reporters.

Only regulatory intervention on environmental grounds to bar a switch back to coal would prevent greater demand if gas prices exceed $5/m Btu.

Birol, who Texas oil billionaire T. Boone Pickens once declared the third most powerful person in world oil markets after the US and Saudi leaders, added that such a development would catch many people by surprise.

Even in Asia gas faces stiff competition from coal, while Europe, the region with the highest climate sensitivity, is witnessing the amount of electricity generated from coal rising at rates of as much as 50% per year in some countries.

It's often forgotten that coal has dominated the global energy demand picture since the start of the 21st century, making up almost half of energy demand growth between 2001 and 2011.

Coal's share of demand growth at just over 1250m tonnes of oil equivalent is almost equal to the total share of natural gas, oil and renewables combined.

But despite lifting hundreds of thousands from poverty over the past couple of decades, coal is by the far the most polluting source of electricity, with more carbon emissions produced per kilowatt hour than any other fossil fuel.

Still Birol warned that while gas relative to coal can markedly decarbonise the energy system, the increased use of gas in itself will not help the world meet the targets agreed by international leaders to limit the global temperature increase to two degrees Celsius.

Offering a stark reminder, Birol pointed out that the energy sector is responsible for more than two-thirds of the emissions that trigger climate change.

He said if today's reserves of coal, oil and gas, were all burned the two degrees temperature limitation - designed to leave the planet's climate unchanged - would be far exceeded.

To achieve the climate goals, more than two-thirds of current fossil fuel reserves cannot be consumed before 2050 unless carbon capture and storage (CCS) is widely deployed. "If the energy industry wants to meet climate targets and still make use of all those reserves it will need to address CCS as an asset protection strategy," added Birol.

Speaking about the global energy system, Birol said its foundations are shifting very fast because of three drives: the resurgence of oil and gas production, especially from unconventional fields in the US, Canada and Australia; lower expectations for nuclear capacity growth across the world following the Fukushima Dai'ichi nuclear crisis; and the new, legally binding, legislation being enacted in the major energy consuming regions - Europe, the US and China - to improve energy efficiency.

As a result of this changing outlook, Birol tipped the US economy to make a very strong comeback, whereas Europe and Japan will face difficulties because of the significantly higher energy input costs they bear.

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