World demand for natural gas could rise more than 50% by 2035, from2010, the International Energy Agency said Tuesday, but only if a significantportion of the vast global resources of shale gas, tight gas and coalbedmethane can be developed profitably and in an environmentally acceptable way.
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The IEA said the surge in North American production of unconventionalgas, thanks to technology advances, held out the prospect of further outputincreases in the US and Canada and "the emergence of a large-scaleunconventional gas industry in other parts of the world, where sizeableresources are known to exist."
This would help bring about greater energy diversity and boost energysecurity and would also result in global benefits in the form of reducedenergy costs, the IEA said in a special report, Golden Rules for a Golden Ageof Gas.
Gas could take a 25% share of the global energy mix by 2035, overtakingcoal to become the second largest primary energy source after oil, in theIEA's most positive scenario for unconventional gas.
The agency is advocating that policymakers and the industry adopt a setof "golden rules" which take into account a range of social and environmentalconsiderations.
"The golden rules underline that full transparency, measuring andmonitoring of environmental impacts and engagement with local communities arecritical to addressing public concerns," it said.
The agency recommends careful choice of drilling sites, thorough welldesign and integrity testing, and monitoring of waste water, among othermeasures.
In this "golden rules" scenario production of unconventional gas --mainly shale -- more than triples to 1.6 trillion cubic meters in 2035,accounting for nearly two-thirds of incremental gas supply over theintervening period.
The share of unconventional gas in current total gas output is 14% butthis will rise to 32% in 2035, with most of the increase coming after 2020,"reflecting the time needed for new producing countries to establish acommercial industry," the agency said.
During the period to 2035, the US will overtake Russia as the world'sbiggest producer of natural gas, the IEA said. China will also be among thetop producers because its big unconventional resource base will allow veryrapid growth in unconventional production, starting around 2020.
The IEA also sees big increases in Australia, India, Canada andIndonesia, and forecasts that production of unconventional gas in theEuropean Union, led by Poland, will be sufficient after 2020 to offsetcontinued decline in conventional output.
The investment needed to develop these global resources ofunconventional gas will be sizable, and "constitutes 40% of the $6.9 trillion(in year-2010 dollars) required for cumulative upstream gas investment in thegolden rules case," the agency said.
THREAT TO GROWTH
But the IEA warned that if the industry is not careful to develop in anacceptable way, its growth could be restricted. In the IEA's "lowunconventional" case a lack of public acceptance means that unconventionalgas production rises only slightly above current levels by 2035.
Lower availability of gas in this scenario results in higher prices, andthe share of gas in the global energy mix increases only slightly, from 21%in 2010 to 22% in 2035, remaining behind coal, and behind the 25% of thegolden rules case.
This low unconventional scenario also sees different trade patterns,with North America "requiring significant quantities of imported LNG." TheIEA said it estimated that transparent, acceptable development ofunconventional gas would add only around 7% to the overall cost of a typicalshale gas well, and possibly less for a larger project with multiple wells.
That extra cost could be an affordable increase for developers to pay ifit brings them a wider market overall.
Currently in the US, where the shale gas industry is most developed,front-month gas prices are only around $2.60/MMBtu, and look very competitiveagainst gas elsewhere in the world, where shale gas remains undeveloped.
Platts spot European gas prices are around $9/MMBtu and spot Asian LNG,measured by the Japan Korea Marker, around $18/MMBtu.
US gas also looks cheap compared with oil, equating to a price of around$15/b against oil prices of around $110/b.
Some opponents of shale gas have argued that it should not be developedbecause greater use of gas could increase global emissions. The IEA said,however, that energy related CO2 emissions would be 1.3% higher in 2035 inits low unconventional case than in its golden rules case.
But it said, "greater reliance on gas alone" could not achieve theinternational goal of limiting the global average temperature increase to 2degrees Celsius above pre-industrial levels.
--Margaret McQuaile, firstname.lastname@example.org
--Alex Froley, email@example.com