Gas golden age hinges on frack standards
IEA sees unconventional future depending on wider acceptance
A “GOLDEN age” of increased gas production and consumption depends on unconventional gas gaining wider acceptance, the International Energy Agency (IEA) said today.
Global gas use could rise more than 50% to 5.1 trillion tonnes by 2035, meeting more than 25% of energy demand, according to the IEA’s new gas report. Gas is also forecast to overtake coal by 2030, with unconventional gas expected to meet 40% of demand during “the golden age of gas” – but only if hydraulic fracturing (fracking) is embraced.
“The golden age of gas hinges on, among other things, whether or not the gas industry is able to address this issue,” Fatih Birol, IEA chief economist, said. “And if strict regulation and best practices are applied, we can mitigate risks.”
Unconventional gas production has met with some resistance, not least because it is a water-intensive process and there are concerns about the disposal of the toxic waste water resulting from fracking.
The IEA believes technology and higher standards could quash environmental concerns, but may increase the cost of unconventional-gas extraction. “If the gas companies want to see the golden age of gas, they need to apply golden standards for best practices to produce unconventional gas,” Birol said.
Unconventional gas is expected to make up the bulk of US and Chinese gas production by 2035, making them the second-largest, at 779 billion cubic metres a year (cm/y), and third-largest, at 303 billion cm/y, gas producers, respectively. Russia is forecast to be the largest gas producer at 881 billion cm/y with the majority of output from conventional sources.
Although China has a problem with water supply, the IEA believes it will still produce significant amounts of unconventional gas.
“It’s definitely a problem ... which in turn will increase the cost of production in China. But still, it makes a lot of sense to produce shale gas instead of bringing in coal from Inner Mongolia. In China, the growth for gas is not only based on economics, but on pollution issues,” Birol said.
China’s gas demand is forecast to leap from 85 billion cm/y to 634 billion cm/y by 2035. This matches the whole of the EU’s use of 636 billion cm/y by 2035. Most of the additional demand will come from Chinese power generators, with gas accounting for only 4% of the power mix now compared with a global average of around 20%.
The IEA said Poland was leading unconventional production in Europe, but Birol said no significant amounts of gas would be produced for the next 25 years.
Liquefied natural gas (LNG) production is also set to increase, with Australia overtaking Qatar as the world’s largest producer by 2035, mainly because of gas extraction from huge coal-bed methane resources. Qatar can produce 77 million tonnes a year (t/y) of LNG, but Australia is developing a number for production projects including huge 15 million t/y Gorgon project.
Australia on the rise
Australia is also expected to benefit from around a third of long-term Japanese LNG contracts ending over the next five years, with an opening for Australian LNG producers to take some market share away from Middle East suppliers.
And although the US has recently approved an LNG export licence, the IEA expects North America to remain a gas island with “no significant imports or exports in the next 25 years”.
The IEA also forecast that gas prices will stay low, although the existing supply glut – stemming from extra output from shale gas and lower consumption from global recession – is expected to end by 2015. This is five years earlier than previously predicted.
Global gas prices are expected to converge, but a truly global market is not expected even by 2035, with gas prices still linked to oil.
“We see a gradual move from oil-indexation. More and more flexibility and hub based pricing will play a role in long-term contracts. But oil indexation is not completely over,” Birol said.
The IEA also said more gas use would increase global carbon emissions, with utilities moving away from zero-carbon nuclear power generation to build gas-turbines. Cheap gas is also expected to force governments re-evaluate renewable-energy subsidies.
“An increased share of natural gas in the energy mix alone will not put the world on a carbon emissions path consistent with an average global temperature rise of no more than 2°C,” the IEA said. Although gas burning emits half the amount the emissions as coal, it still produces more carbon than nuclear and renewable energy electricity generation.