By SARAH KENT
LONDON -- Natural gas is set to emerge as a significant new transportation fuel over the next five years, raising the prospect of a challenge to oil's dominance in the sector, the International Energy Agency said Thursday.
Already, gas demand in road transport grew tenfold between 2000 and 2010, but cheap gas in the US as a result of the boom in production of shale gas, and concerns over air pollution and oil dependency in China, could help it develop into a more mainstream fuel, the IEA said.
In its five-year gas outlook, the Paris-based energy watchdog said it expects natural gas use in road and maritime transportation to rise to 98 billion cubic meters by 2018, covering around 10% of incremental energy needs in the transport sector. According to the IEA, this shift will do more to reduce the medium-term growth in oil demand than both biofuels and electric cars combined.
"Gas is already a major fuel in power generation, but the next five years will also see it emerging as a significant transportation fuel, driven by abundant supplies as well as concerns about oil dependency and air pollution," said Maria van der Hoeven, the IEA's executive director.
Further down the line, the IEA said gas had significant potential for use in heavy-duty transport such as freight and rail, though such developments are unlikely over the next five years.
Despite this new demand factor, the IEA also highlighted challenges facing gas in all major regions, including the resilience of coal in North America, weak demand in Europe and production difficulties in the Middle East and Africa.
Although the agency still sees the coming five years as a "Golden Age" of gas, its latest medium-term forecast reduces the five-year demand projection by 75 billion cubic meters compared with its 2012 outlook.
Nonetheless, world natural gas demand is expected to rise by 15.6% over the next five years to reach 3.962 trillion cubic meters, an increase from today's level that's equivalent to the current gas production in the Middle East.
China is to remain the main driver of demand, accounting for 30% of global growth over the next five years. The country is expected to become the world's fourth-largest gas producer, but will still absorb a third of the expected increase in liquefied natural gas supply and all of the increase in output from Central Asia, the IEA said.
The US is expected to continue to dominate supply growth, accounting for more than a fifth of the increase in global gas production as it continues to exploit its reserves of shale gas.
US production has surged over the past several years, thanks to a technique known as hydraulic fracturing which has enabled companies to extract natural gas trapped in shale rock formations. The success enjoyed by the US has increased global focus on unconventional gas, however the IEA said no major development is expected to take place outside of North America and possibly China before 2018.
Nonetheless, persistent interest in shale gas and other unconventional gas resources could prepare the ground for unconventional production to take off after 2020, the IEA said.
This story has been updated to correct the nature of the rise in gas consumption in the third paragraph. The 98 billion cubic meter consumption level for natural gas given by the IEA included maritime transport as well as road transport.
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