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) last week.

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.

International trade in natural gas also grows over the coming decades, WEO-2010 said. China’s imports grow the most, from just 5 Bcm in 2008 to 200 Bcm in 2035.

“In fact, China accounts for a stunning 40% of the growth in interregional trade over the Outlook period,” said IEA. “Most of the growth in gas trade takes the form of LNG; LNG trade doubles between 2008 and 2035. LNG supply will expand rapidly in the next few years as a wave of projects are completed.”

“Oil remains the dominant fuel in the primary energy mix to 2035,” according to the WEO findings. “Nonetheless, its share of the primary fuel mix diminishes as higher oil prices and government measures to promote fuel efficiency lead to further switching away from oil in all sectors.”

Coal demand rises until about 2020 and then begins to decline toward the end of the Outlook period in 2035. The share of nuclear power, however, increases from 6% in 2008 to 8% in 2035. And “modern renewable energy,” including hydro, wind, solar, geothermal, modern biomass and marine energy, “triples between 2008 and 2035, its share in total energy demand increasing from 7% to 14%.”

IEA’s latest Outlook used three global scenarios to determine the future level and pattern of energy use worldwide. “The pace of the global economic recovery holds the key to energy prospects for the next several years, but it will be governments’ responses to the twin challenges of climate change and energy security that will shape the future of energy in the longer term,” said the report.

In the “New Policies Scenario,” IEA’s central forecast, world primary energy demand increases by 36% between 2008 and 2035, or 1.2% a year on average. This compares with 2%/year over the previous 27-year period. The scenario assumes “cautious implementation of the policy commitments and plans announced by countries around the world, including the national pledges to reduce greenhouse gas (GHG) emissions and plans to phase out fossil fuel subsidies.”

Projected demand growth under the New Policies forecast is slower than in the “Current Policies Scenario,” in which IEA assumes no change in government policies beyond those already adopted; demand grows by 1.4%/year over 2008-2035.

In the “450 Scenario,” which sets out an “energy pathway” to limit the concentration of GHG emissions in the atmosphere to about 450 parts/million of carbon dioxide equivalent, and consistent with an increase in global temperature of 2 degrees Centigrade, “demand still increases, but by only 0.7% per year.”

However, IEA Executive Director Nobuo Tanaka, speaking in London, expressed some caution in the IEA forecast. The “energy world is facing unprecedented uncertainty, with the strength of the economic recovery holding the key to how the energy markets evolve over the next few years,” he said.

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