Technological advances in the production and transportation of natural gas are raising new opportunities for the fuel but also challenging traditional ways of doing business in gas markets, according to a new comprehensive report by IHS Cambridge Energy Research Associates (IHS CERA) and the World Economic Forum.
The report, Energy Vision Update 2011: A New Era for Gas, says that advances in unconventional gas production coupled with growing liquefied natural gas (LNG) trade are changing long-standing assumptions about natural gas markets around the world.
The unconventional gas revolution is the most important energy development so far this century and it has the potential to boost gas production far beyond North America, said Daniel Yergin, IHS CERA chairman and Pulitzer Prize-winning author of The Prize. The resulting changes to the supply outlook and fundamental economics of natural gas will be transformative. They can have far-reaching impact on the electric power industry and the fuel choices in the years ahead. Understanding what this may mean is a top-level topic for the energy industry worldwide.
As a result of the shale gas revolution, North America has sufficient recoverable gas to meet current levels of consumption for well over 100 years. Global LNG trade doubled in the decade from 2000 to 2010 and is expected to increase another 50% or more in the next 10 years. Recent advances in technology mean that natural gas is likely to be more available, and less expensive, than was assumed just a few years ago.
The North American shale gale served to slow, if not reverse, the move toward the convergence of prices and a truly global gas market, the report says. North America is much less dependent on LNG than was projected just three years ago, disconnecting the market from gas prices elsewhere.
In the context of a world with increasing demand for energy, gas is playing a critical role. It is particularly attractive for power generation as a relatively cheaper and cleaner source of energy, said Roberto Bocca, senior director and head of energy at the World Economic Forum. With many policy discussions today focusing on emissions and carbon reduction, natural gas represents an opportunity for progress, since a modern natural gas plant can produce electricity with half the greenhouse-gas emissions of an older coal-fired plant.
Growing demand for LNG in Asia brings increasing interconnectedness between Asian and European gas markets, Mr. Yergin said. But with a mostly self-sufficient North American gas market, one should expect an inter-regional, rather than a global, market.
The surge of gas supply that occurred during the global recession also challenged some longstanding tenets of the worlds gas markets, particularly in Europe, the report notes. The traditional linking of gas prices to oil in Europe, though likely here to stay, is nonetheless evolving as long-standing gas suppliers are offering more flexibility in contract terms and pricing to compete with growing volumes of LNG.
In contrast to the revolution in supply, the demand outlook for gas is more evolutionary, the report finds. The primary uses for gas remain the samespace and water heating in residential and commercial applications, fuel and feedstock for industrial applications, and power generation.
Natural gas use in power generation, in particular, will be the main source of demand growth in the future, the report says. Natural gas is the cleanest of the fossil fuels, emitting the least greenhouse-gas (GHG) emissions and other pollutants than coal or oil, making it a preferred fossil fuel, given the imperative to reduce emissions. HP