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Unconventional Shale Gas, Oil to Expand Rapidly, Says IEA

More than one-third of the global increase in natural gas production by 2035 will come from unconventional shale gas, coalbed methane and tight gas, according to the World Energy Outlook 2010 (WEO-2010), which was issued by the International Energy Agency (IEA) on Tuesday.

Gas is the only fossil fuel for which worldwide demand will be higher in 25 years than it was in 2008, the energy watchdog said in its annual report.

The role of unconventional oil also is expected to "expand rapidly," enabling it to meet about 10% of world demand by 2035, the Outlook said. Canadian oilsands and Venezuela's extra-heavy oil dominate the mix, but coal-to-liquids, gas-to-liquids and to a "lesser extent, oil shales also make a growing contribution" within 15 years.

Unconventional oil growth "is predicated on the introduction of new technologies that mitigate the environmental impact of these sources of oil, notably their relatively high CO2 [carbon dioxide] emissions."

"The world energy outlook to 2035 hinges critically on government policy action and how that action affects technology, the price of energy services and end-user behavior," IEA economists found. "The policy commitments and plans that governments have recently announced would, if implemented, have a real impact on energy demand and related CO2 emissions."

Gas "is certainly set to play a central role in meeting the world's energy needs for at least the next two-and-a-half decades," the report said.

However, a "sizable glut of global gas supply capacity has developed, a result of the economic crisis, which depressed gas demand, together with unexpectedly strong growth in unconventional gas production in the United States in the last few years and a surge in liquefied natural gas (LNG) capacity," WEO-2010 stated.

Based on IEA's central projected demand scenario, "we estimate that the glut, measured by the difference between the volumes actually traded and total capacity of inter-regional pipelines and LNG export plants, is set to reach over 200 billion cubic meters (Bcm) in 2011, before starting a hesitant decline. This glut will keep the pressure on gas exporters to move away from oil-price indexation."

The gas glut could grow in 2011 and last up to a decade, said IEA chief economist Fatih Birol.

Led by a thirst for gas, especially in China and the Middle East, global gas demand is entering a "golden age," with demand up as much as 44% to 2035 over 2008 levels, reaching 4.5 trillion cubic meters/year, or 435 Bcf/d, IEA said. China's gas use grows by 6% a year on average, and demand in the Middle East "increases almost as much." The United States remains the world's second largest energy consumer behind China by 2035.

Growth in gas demand is forecast to "far surpass that for the other fossil fuels due to its more favorable environmental and practical attributes, and constraints on how quickly low-carbon energy technologies can be deployed," IEA stated.

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