Whatever global climate policies are put into place, natural gas for years to come will play a “bridging role” in meeting the world’s sustainable energy needs, the International Energy Agency (IEA) said last week.

In its World Energy Outlook (WEO) 2009, the IEA is forecasting that global gas demand will rise by 41% in 2030 to 4.3 trillion cubic meters (Tcm) from 3.0 Tcm in 2007. The recent rapid development of unconventional gas resources — notably shale gas — in North America has transformed the gas market outlook, said IEA officials.

“Unconventional gas is unquestionably a game changer in North America with potentially significant implications for the rest of the world,” said IEA Executive Director Nobuo Tanaka. The share of unconventional gas in total U.S. gas output jumped to around 50% in 2008 from 44% in 2005, and is projected to rise to almost 60% in 2030.

“The boom in North American unconventional gas production, together with the recession’s impact on demand, is expected to prolong the glut of gas supply for the next few years,” the WEO noted. A prolonged global gas glut is expected to hurt prices and delay or cancel some projects.

According to the WEO, the annual underutilization of interregional pipeline and liquefied natural gas capacity “could rise from around 60 billion cubic meters (Bcm) in 2007 to 200 Bcm by 2015.

“This glut could have far-reaching consequences for the structure of gas markets, with suppliers to Europe and Asia-Pacific coming under pressure to modify pricing terms under long-term contracts, to delink gas prices from oil prices, sell more gas on a spot basis and to cut prices to stimulate demand,” the report noted.

“Our analysis shows that new unconventional sources of supply have the potential to increase overall North American production at a wellhead cost of between $3/MMBtu and $5/MMBtu (in year-2008 dollars and drilling and completion costs) for the coming several decades, though rising material costs and rig rates are expected to exert upward pressure on unit costs over time,” the WEO reported. “The high decline rates of unconventional gas will also require constant drilling and completion of new wells to maintain output.”

Newfield Exploration Co. Chairman David Trice, who chairs America’s Natural Gas Alliance (ANGA), said the group, which represents 28 of the largest domestic gas producers, agrees with the WEO assessment. North America’s new gas supplies have “significantly transformed the gas market outlook,” he said.

The WEO report, said Trice, “also echoes our sentiment that America must change its energy course today. This is not only an urgent issue domestically but internationally…” The gas industry “supports nearly three million U.S. jobs right now and will create many more jobs in the future as more unconventional gas resources are developed…”

The WEO also warned that the world’s use of fossil fuels needs to peak by 2020 to avoid a critical spike in global temperatures.

Growth in renewable energy, more energy efficiency and increased use of nuclear power are critical to weaning the world away from fossil fuels, the WEO noted. In addition, it recommended changes within the transportation sector so that by 2030 six out of every 10 vehicles sold would be hybrids or electric.

“This would be a revolution,” said IEA’s chief economist Fatih Birol. “This revolution could only take place if there is a financial signal to the energy industry.” A global climate agreement is paramount, he added. “We need a signal for the energy industry. Without that, nothing will move.”

According to the IEA, the United States has the most responsibility in helping move the world away from fossil fuels. However, the “greatest scope for change” will be in China, which, if it were to meet its targets, would be responsible for more than a quarter of the greenhouse gas emission reductions that IEA said is needed to avoid the worst climate change risks.

The world would have to find “four new Saudi Arabias” with production capacity of about 12.5 million b/d of oil to overcome production declines from maturing fields over the next 21 years, according to the WEO. Enough natural gas and oil reserves exist, but access to the reserves is limited by politics and investment barriers.

The latest WEO “provides both a caution and grounds for optimism,” said Tanaka. “Caution, because a continuation of current trends in energy use puts the world on track for a rise in temperature of up to six degrees Centigrade and poses serious threats to global energy security. Optimism, because there are cost-effective solutions to avoid severe climate change while also enhancing energy security — and these are within reach as the new WEO shows.”

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