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IEA: North America Leads Global NatGas, Oil Makeover

The "extraordinary growth in oil and natural gas output in the United States will mean a sea-change in global energy flows," the International Energy Agency (IEA) said last week in its flagship World Energy Outlook (WEO) for 2012.

In its central scenario, the "new policies scenario," the United States becomes a net exporter of natural gas by 2020 and is almost self-sufficient in energy, in net terms, by 2035. North America emerges as a net oil exporter, accelerating the switch in direction of international oil trade, with close to 90% of Middle Eastern oil exports drawn to Asia by 2035.

Demand for natural gas is seen expanding "steadily" to 2035 in all three of WEO's scenarios, the "only fossil fuel for which this is the case." Gas consumption increases at an annual average rate of 1.6%, with the growth rate three times faster in countries that are not part of the Organisation for Economic Co-operation and Development (OECD) than in more mature OECD markets.

U.S. gas demand "has been steadily growing since 2009 and it continues to increase in our projections, albeit at a slower annual average pace than at present," according to the WEO. "Natural gas prices in the United States are assumed to increase, compared with the historic lows seen in 2011-2012, but they remain at levels that promote a continued expansion of consumption," -- even with the start of liquefied natural gas (LNG) exports.

"A boost to gas-intensive industrial activity, growth in power generation and, from a low base, rising use in the transport sector, mean that gas is the only fossil fuel in the United States that sees an absolute increase in use over the period to 2035, with coal and oil both on a declining trend." The share of gas is forecast to overtake oil to become the "most important fuel" in the U.S. energy mix over the forecast period.

Global natural gas resources are forecast to be "easily sufficient to accommodate projected increase in demand," with "recent substantial upward revisions to estimates of how much conventional and unconventional gas may be ultimately recoverable," according to the WEO. The IEA earlier this year substantially revised upwards its estimate of remaining recoverable global gas resources to reflect the results of updated assessments of undiscovered conventional gas resources and reserves growth by, among others, U.S. Geological Survey.

Remaining technically recoverable resources of global conventional gas, including proven reserves, reserves growth and undiscovered resources, now is estimated at more than 460 Tcm, or 16,234 Tcf, an increase of around 60 Tcm (2,118 Tcf) from the 2011 WEO. For shale gas, remaining resources are estimated at 200 Tcm, or 7,062 Tcf, which includes the latest U.S. Energy Information Administration estimates of 81 Tcm (2,860 Tcf) for tight gas and 47 Tcm (1,659 Tcf) for coalbed methane (CBM) (see NGI, Aug. 6).

"In total, natural gas resources amount to 790 Tcm [27,898 Tcf], or more than 230 years of production at current rates," the WEO noted. Unconventional gas would account for "nearly half of the increase in global gas production to 2035."

However, the prospects for unconventional production worldwide still are uncertain and "depend, particularly, on whether governments and industry can develop and apply rules that effectively earn the industry a 'social license to operate' within each jurisdiction, so satisfying already clamorous public concerns about the related environmental and social impacts."

Among the OECD regions, North American gas production is projected to continue to expand, thanks mainly to U.S. shale gas in the United States. Total U.S. gas production grows from an estimated 650 Bcm (22.95 Tcf) in 2011 to 800 Bcm (28.25 Tcf) in 2035 in the WEO's new policies scenario, putting the United States ahead of Russia as the largest gas producer in the world between 2015 and the end of the 2020s.

"Shale gas accounts for almost all of the increase in U.S. output, with conventional gas and coalbed methane output remaining close to current levels in 2035 and tight gas showing a gradual decline." In Canada, gas production is projected to "climb gradually" through the WEO's scenarios to 2035, reaching almost 190 Bcm (67.098 Tcf) by then, with higher shale gas and CBM offsetting a decline in conventional gas. Mexico's gas output also is projected to increase to around 75 Bcm or 26.486 Tcf, with most of the increase coming in the second half of the projection period.

Overall, North America will lead a shift in the world's energy balance shift in global energy balance to 2035, and will "recast expectations" about the role of different countries, the WEO found.

The regional picture for natural gas varies, but "the global outlook over the coming decades looks to be bright, as demand increases by 50%, from 3.5 trillion cubic meters (Tcm) today to 5 Tcm, or 176.6 Tcf in 2035. Almost half of the increase in production to 2035 is from unconventional natural gas, with most of it coming from the United States, Australia and China. For U.S. production figures, IEA relied on assistance from the U.S. State and Energy departments as well as many analysts and producers. The Ontario Energy Board, producers and analyst firms also provided insight on Canada production.

"North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world, yet the potential also exists for a similarly transformative shift in global energy efficiency," said IEA Executive Director Maria van der Hoeven. "This year's World Energy Outlook shows that by 2035, we can achieve energy savings equivalent to nearly a fifth of global demand in 2010. In other words, energy efficiency is just as important as unconstrained energy supply, and increased action on efficiency can serve as a unifying energy policy that brings multiple benefits."

Links between regional natural gas markets would strengthen under the WEO's central scenario, as liquefied natural gas trade becomes more flexible and contract terms evolve. Regional dynamics change, but global energy demand would continue to increase, growing by more than one-third to 2035. China, India and the Middle East would account for 60% of the growth; demand barely rises in the countries within the OECD. However, "there is a pronounced shift toward gas and renewables."

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