Energy market reforms, more complex supply chains and the growing share of international trade in global energy supply pose increasing risks to investors in the natural gas industry, according to the International Energy Agency (IEA), which on Tuesday issued the “World Energy Investment Outlook 2003.”

Investors in the gas industry over the coming 30 years “will require a commensurate increase in returns if a shortfall in gas investment is to be averted,” the report found. “Investments in liquefied natural gas (LNG) chains will have to be greater than in the past to meet a six-fold increase in LNG trade — despite lower LNG unit costs.” And, lifting “still-widespread impediments to foreign investment and tax reform will be crucial to capital flows to the gas industry, especially in the Middle East, Africa and Russia, where global gas reserves are concentrated.”

“If present trends continue, the world will need to invest $16 trillion over the next three decades to maintain and expand energy supply,” said Claude Mandil, executive director of the French-based IEA. The number is larger in real terms than the comparable figure for the past 30 years, and is equivalent to 1% of annual global gross domestic production over the period. “Without new policy actions, world energy demand will rise by two-thirds between now and 2030, and the world economy will falter if these energy supplies are not made available.”

The report quantifies in detail, by fuel sector and by region, energy investment needs to 2030, and also identifies the obstacles to mobilizing capital on the required scale.

Power generation, transmission and distribution will absorb almost 60% of global energy investment, or nearly $10 trillion, according to IEA. The amount increases to 70% if investment in the fuel chain to meet power station fuel requirements is included.

Total investments in the oil and gas sectors will amount to more than $3 trillion each, or about 19% each of global investments. Investment in non-conventional oil, including gas-to-liquids, will amount to $205 billion, or 7% of total oil investments.

On the gas side, more than half of the estimated $3.1 trillion investment will be spent in exploration and development, IEA noted. “This investment will be needed to compensate for the natural decline in production capacity and to meet a near-doubling of gas demand over the projection period.” North American expenditures will take up “well over a quarter” of the total investment.

For the gas sector, “in many cases, only the largest international oil and gas companies, with strong balance sheets, will be able to take on the required multi-billion dollar investments,” the report found. “Long-term take-or-pay contracts in some form will remain necessary to underpin most large-scale projects.”

The IEA found that advanced technologies now being developed, which include carbon sequestration, hydrogen, fuel cells and advanced nuclear reactors “could dramatically alter energy investment patterns and requirements in the longer term. How quickly these technologies are deployed depends critically on fiscal and regulatory incentives to accelerate their commercial viability.”

To read the full report, visit www.iea.org.

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