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IEA Sees Shale-Gilded Golden Age for Gas

Unconventional gas supplies around the world, particularly those from shale basins, "may hold the key to expanding the long-term role of gas in the global energy mix," the International Energy Agency (IEA) said in a new report released Monday.

"Already, the unconventional gas revolution has reshaped the market in the United States and lastingly affected global gas markets," IEA said in "Are We Entering a Golden Age of Gas?"

"China's first licensing round for shale gas acreage is expected in mid-2011. Exploration of unconventional resources has started in Europe, with a focus primarily on shale gas. The leading country is Poland, but activities are under way in Germany, Spain, the United Kingdom, Ukraine and elsewhere." EIA also noted that coalbed methane development is ongoing in Australia and elsewhere.

Besides shale gas supplies around the world, factors such as environmental worries over coal-fired power plant emissions and the fizzling of the nuclear renaissance are ushering in the "golden age" for gas, IEA said.

"We have seen remarkable developments in natural gas markets in recent months. There is a strong potential for gas to take on a larger role, but also for the global gas market to become more diversified and therefore improve energy security," said IEA Executive Director Nobuo Tanaka. "While natural gas is the 'cleanest' fossil fuel, it is still a fossil fuel. Its increased use could muscle out low-carbon fuels, such as renewables and nuclear -- particularly in the wake of the incident at [the] Fukushima [nuclear power plant] and the likelihood of a reduced role for nuclear in some countries. An expansion of gas use alone is no panacea for climate change."

Among the report's projections is the expectation that global gas demand could reach 5.2 trillion cubic meters (Tcm) in 2035, which is 1.8 Tcm more than today and nearly 0.6 Tcm more than in the "WEO 2010 New Policies Scenario in 2035," the agency said.

The report is part of the "World Energy Outlook (WEO) 2011" series and examines factors that could result in a more prominent role for gas in the global energy mix.

"The Golden Age of Gas Scenario...departing from the 'WEO 2010 New Policies Scenario' -- our base case -- incorporates a combination of new assumptions that underpin a more positive outlook for gas," IEA said in the report.

The report outlines a "high-gas" scenario in which global use of natural gas rises by more than 50% from 2010 levels and accounts for more than a quarter of global energy demand by 2035. However, the report also warns on the climate benefits of such an expansion, noting that an increased share of gas in the global energy mix "is far from enough on its own" to put the world on a carbon emissions path consistent with a global temperature rise of no more than 2 degrees Celsius.

"All major geographical regions have recoverable natural gas resources equal to at least 75 years of current consumption," IEA said. "However, timely and successful development of these resources depends on a complex set of factors, including government policy choices, technological capability and market conditions."

Factors contributing to the bright outlook for gas include ample availability (much of it from unconventional plays), implementation by China of an ambitious policy for gas use, lower growth of nuclear power and more use of natural gas in road transport, IEA said.

In the scenario, China's natural gas demand alone rises from about the level of Germany in 2010 to match that of the entire European Union in 2035. To meet the growth in demand, by 2035 annual gas production must increase by 1.8 trillion cubic meters, about three times the current production of Russia, IEA said. Gas from conventional plays will continue to make up the greater part of global production, but unconventional gas will become increasingly important, meeting more than 40% of the increase in demand, the agency predicted.

"Unconventional gas resources are now estimated to be as large as conventional resources, but their production outlook is uncertain as the use of hydraulic fracturing to produce unconventional gas has raised environmental concerns and tested existing regulatory regimes," IEA said. "Based on available data, the report estimates that shale gas, produced to proper standards of environmental responsibility, has 3.5% higher 'well-to-burner' emissions than conventional gas."

However, the all-in emissions of shale gas production and use have been a matter of dispute, and opinions on the matter vary widely.

Cornell University researchers recently said methane emissions of flowback gas during completion of fracked wells are high enough to increase the greenhouse gas footprint of shale and tight gas to levels that exceed those of coal (see Shale Daily, April 13). The Cornell research was quickly challenged by a study published by the gas industry-supported American Clean Skies Foundation (see Shale Daily, April 21).

Even more recently, consultancy Wood Mackenzie said the Cornell study overestimated the average volume of gas vented during well completion and flowback stages by 60-65% and overestimated the impact from emissions during well completions by up to 90% (see Shale Daily, May 11).

Countries and regions such as China, India and the Middle East -- where urbanization is under way -- will largely determine the extent to which gas use expands over the next 25 years, IEA said.

"When replacing other fossil fuels, natural gas can lead to lower emissions of greenhouse gases and local pollutants," IEA said. "However, the high gas scenario shows carbon emissions consistent with a long-term temperature rise of over 3.5 degrees Celsius. A path toward 2 degrees Celsius would still require a greater shift to low-carbon energy sources, increased energy efficiency and deployment of new technologies including carbon capture and storage, which could reduce emissions from gas-fired plants."

The report is available for download on the World Energy Outlook website.

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