IEA points to gas growth, again

November 18th, 2016

Natural gas and renewables will be the “big winners” in the global energy outlook over the next 25 years, according to the International Energy Agency.

In its latest World Energy Outlook publication released this week, the IEA says the risks to energy security mean gas will play a central role – with demand rising as much as 50% in the period to 2040.

Renewable energy will grow at pace, but with that come inherent challenges in electricity grid management – as we have noted in the South Australian context in recent months.

Energy security risks will rise and natural gas will emerge with an increasing profile  as the “indispensable”  complement to intermittent wind and solar energy, the IEA says.

Importantly, the IEA Outlook takes into account the national pledges on carbon emissions made in this year’s Paris Agreement on climate change.

The Outlook says “the era of fossil fuels appears far from over”, though it notes that a reduction in oil exploration indicates a falling future energy share for oil.  It forecasts coal to gradually reduce, with natural gas expanding its share and liquid natural gas (LNG) playing a bigger role –a point noted recently by a USA envoy in Australia.

Over the next 25 years, the  “clear winners” will be natural gas, wind and solar, according to  Dr Fatih Birol, the IEA’s Executive Director.

Dr Birol has echoed the concerns of Australian industry, saying that with the anticipated change will come increased energy security risk.

“Traditional concerns related to oil and gas supply remain – and are reinforced by record falls in investment levels,” she says.

“Another year of lower upstream oil investment in 2017 would create a significant risk of a shortfall in new conventional supply within a few years.

“In the longer-term, investment in oil and gas remain essential to meet demand and replace declining production.   At the same time, the variable nature of renewables in power generation, especially wind and solar, entails a new focus on electricity security.”

This is the very message which has been delivered by the Australian Government and by the Australian Consumer and Competition Commission, as well as network management experts.  Recent events in South Australia have graphically illustrated the problem – and may yet provide more evidence if SA experiences severe heat events this summer, when 24-hour air conditioning will be in high demand and wind power may not be in high supply.

The latest World Energy Outlook report forecasts a 50 per cent increase in demand for natural gas over the next 25 years.

The IEA report was noted by the CEO of the Australian Petroleum Production and Exploration Association, Dr Malcolm Roberts, particularly the anticipated surge in the role of natural gas, including LNG.

“The IEA expects LNG exports will eventually overtake pipeline gas as the main form of long-distance trading,” Dr Roberts said.

“This is very good news for Australia. Our $200 billion investment in new LNG plants is set to supply a growing global market over the next 25 years. Australians will see a steady stream of high-paying jobs, export dollars and revenue for governments for decades to come.”

However, Dr Roberts also pointed to the need for governments to heed the IEA’s warning that long-term investment in new oil and gas reserves is crucial to meet growing demand and replace declining production.

“In an extremely competitive global market, Australia cannot expect to attract further investment while unjustified political restrictions on gas development remain in place.”

Dr Roberts said the COAG Energy Council’s independent review of energy security in the national electricity market must take into account the latest data from the World Energy Outlook.

“Retaining sufficient gas-fired plant to provide for immediate back-up when renewable output falls or demand spikes is essential for reliable energy supply,” he said.

“To support that gas-fired generation, we need to see more development of new gas resources in eastern Australia. More gas supply and more gas suppliers will deliver greater energy security, enhance competition and put downward pressures on prices.”

Key findings of the IEA Outlook report:

  • Oil and gas together will account for more than half of all global energy consumption in 2040. Oil is the largest source of energy (27 per cent) share and gas second (24 per cent) in 2040.
  • Gas is forecast to remain the fastest-growing fossil fuel to 2040, with an annual growth rate of 1.5 per cent.
  • Oil demand is expected to grow at an annual rate of 0.4 per cent to 2040, with peak demand not expected before 2040.
  • By 2040, gas demand is forecast to have increased by 50 per cent to 5.2 trillion cubic metres (tcm), accounting for almost a quarter of global energy demand.
  • Inter-regional gas trade is forecast to increase by 70 per cent, with a shift in trade flows towards the Asia-Pacific basin.
  • 130 billion cubic metres (bcm) of LNG liquefaction capacity is under construction, 85 per cent of which is in Australia and the USA.China, India and the Middle East are the main centres of gas demand growth to 2040, with demand increasing by 221 per cent, 278 per cent and 82 per cent respectively.
  • Overcapacity in the LNG market is forecast to be absorbed by mid 2020s, opening up new investment opportunities.
  • IEA estimates US $9.4 trillion of investment is needed in global gas supply to 2040 to ensure secure and reliable supply.

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