The global demand for natural gas by 2040 is forecast to grow by more than half, the fastest rate among all fossil fuels, with an increasingly flexible trade in liquefied natural gas (LNG) offering protection against the risk of supply disruptions, the International Energy Agency (IEA) said in its latest annual forecast, World Energy Outlook (WEO) 2014.
The main regions pushing global gas demand higher are seen as China and the Middle East, "but gas also becomes the leading fuel" for developed nations' energy mix by 2030, countries that are members of the Organization for Economic Cooperation and Development, or OECD.
For the past few years, IEA has said the world was entering the golden age of gas and was gaining the biggest market share of all the fossil fuels, in light of the booming North American renaissance, and in part because of a global call to reduce carbon dioxide (CO2) emissions (see Daily GPI, Nov. 12, 2013). That view is held by many prominent energy economists, including those working for ExxonMobil Corp., BP plc, Royal Dutch Shell plc and Eni SpA (see Daily GPI, Oct. 8; June 16; Dec. 12, 2013).
The boost in OECD gas use would be "helped by new regulations in the United States limiting power sector emissions," WEO stated. "In contrast to oil, gas production increases almost everywhere (Europe is the main exception) and unconventional gas accounts for almost 60% of global supply growth."
The key uncertainty -- only outside North America -- is whether gas can be made available at prices that are attractive to consumers while still offering incentives for the necessary large capital-intensive investments in gas supply, said WEO economists.
Concerns about the security of future gas supply "are allayed in part by a growing cast of international gas suppliers, a near-tripling of global liquefaction sites and a rising share of LNG that can be re-directed in response to the short-term
needs of increasingly interconnected regional markets."
The IEA, headquartered in Paris, represents 29 countries including the United States and Canada, whose primary mandate is to promote energy security through a collective response to physical disruptions in oil supplies, and to provide research on ways to ensure reliable energy sources for its member countries and beyond.
By 2040, the world's energy supply mix is seen divided into four almost-equal parts: oil, natural gas, coal and low-carbon sources.
"Resources are not a constraint over this period, but each of these four pillars faces a distinct set of challenges," the WEO noted. "Policy choices and market developments that bring the share of fossil fuels in primary energy demand down to just under three-quarters in 2040 are not enough to stem the rise in energy-related CO2 emissions, which grow by one-fifth."
The growth in CO2 would put the world on a dangerous path, with a long-term global average temperature increase of 3.6 degrees C, the WEO warned. IEO soon plans to issue a special report on global CO2 levels and climate change.
IEA's economists also warned that the "short-term picture of a well-supplied oil market should not disguise the challenges that lie ahead as reliance grows on a relatively small number of producers.
"Regional oil demand trends are quite distinct: for each barrel of oil no longer used in OECD countries, two barrels more are used in the non-OECD. Increased oil use for transport and petrochemicals drives demand higher, from 90 million b/d in 2013 to 104 million b/d in 2040, although high prices and new policy measures gradually constrain the pace of overall consumption growth, bringing it towards a plateau."
The WEO said an investment of about $900 billion a year in upstream oil and gas development is needed by the 2030s to meet projected demand, but uncertainties exist over whether it could be forthcoming in time, "especially once United States tight oil output levels off in the early 2020s and its total production eventually starts to fall back."
In part, economists pointed to the difficulty of replicating the "tight oil experience at scale" outside North America, unresolved questions over the outlook for growth in Canadian oilsands output, deepwater complexities and the sanctions that restrict Russian access to technologies and capital markets.
"Above all," said economists, there are political and security challenges. "The situation in the Middle East is a major concern given steadily increasing reliance on this region for oil production growth, especially for Asian countries that are set to import two out of every three barrels of crude traded internationally by 2040."