Relief is on the way for gas investors who got hammered during the recession, but they'll have to wait a while: The natural gas glut will probably peak next year and fade gradually over the next decade as demand rises strongly in China.
The tentative end of the glut, which pushed down the value of gas-heavy investment funds by about 40 per cent during the recession, was one of the main conclusions of the International Energy Agency's flagship World Energy Outlook report, released Tuesday in Paris and London. The 738-page report predicted the surplus would rise to 200 billion cubic metres next year, up from 130 billion this year, followed by a "hesitant decline" over the next decade or so, suggesting prices may have bottomed out but will not bounce back quickly.
The IEA, which advises the developed world, including Canada, on energy policy and security, is bullish on gas over the long term because burning it for electricity generation and other uses does the least environmental damage of the main fossil fuels, and because it appears that China is developing a voracious appetite for the fuel. The IEA said global gas demand will rise 44 per cent by 2035, with China accounting for more than a fifth of that increase.
"China could lead us into a golden age for gas," the IEA said. "Demand in the Middle East increases almost as much."
The IEA report landed as commodity prices, fuelled by the new $600-billion (U.S.) quantitative easing program in the United States, surged, and as Qatar, the top exporter of liquefied natural gas (LNG), predicted at the Singapore Energy Summit that the gas market would come into balance in as little as three years - a somewhat more bullish forecast than the IEA's.
California's Chevron Corp. is also taking a positive view on gas. On Monday, it agreed to pay $4.3-billion to buy gas producer Atlas Energy. Atlas is one of the top developers of the Marcellus Shale gas reservoir in Pennsylvania. The company also has shale gas properties in Canada, Romania and Poland.
Gas demandfell 2 per cent in 2009, the biggest drop since the 1970s, as the spectre of vast new shale gas supplies helped to drive down prices. The IEA's chief economist, Fatih Birol, said the gas surplus is "putting additional pressure on [the development]of renewable energies, especially in the United States and Europe."
The future gas powerhouses will be in Africa and the Middle East, notably Qatar, where there is ample scope for production increases. Production in North America and Europe has pretty much peaked, in spite of the development of shale gas. The IEA predicted gas production would fall by 6.2 per cent in Britain by 2035, as the North Sea reserves get tapped out.
While gas demand will climb faster than oil demand, the IEA noted that oil will remain the dominant primary energy fuel through 2035, the end year of its 25-year forecast. The agency expects crude oil prices to rise to $113 a barrel (in 2009 dollars) in 2035, up from an average of $60 last year. Mr. Birol predicted the price will rise to about $110 in 2015 from the current price of about $87.
The IEC expects oil demand to grow steadily, in spite of the considerable investments being made in non-fossil-fuel technology and carbon reduction efforts under last year's Copenhagen climate-change accord. By 2035, oil demand will reach 99 million barrels a day, about 15 million barrels more than 2009's level. All of that growth will come from developing countries - almost half from China alone. Demand in the developed world will actually fall by 6-million barrels a day.
Canada's role as an energy powerhouse seems secure under the IEA forecasts as so-called unconventional oil - oil that cannot be easily pumped out of reservoirs - takes a bigger proportion of the oil mix. Unconventional oil is dominated by the oil sands in Northern Alberta and the heavy oil reserves in Venezuela. The IEA expects oil sands production to climb from 1.3-million barrels a day last year to 4.2-million in 2035, "making an important contribution to the world's energy security."
GLOBAL ENERGY CONSUMPTION
The "central scenario" of this year's IEA outlook is referred to as the New Policies Scenario. Projections take account of policy commitments and plans announced by countries around the world. It assumes the implementation of these plans will be carried out in a relatively cautious manner.
Increase in world primary energy demand between 2008 and 2035, under the New Policies Scenario.
Average yearly increase in demand, compared with 2-per-cent yearly growth over the previous 27-year period.
Amount of the projected increase in demand accounted for by non-OECD countries.
Amount of the projected growth contributed by China.
Growth in demand for natural gas between 2008 and 2035.
Average yearly increase in natural gas demand over that time period.
Growth in gas demand from China, accounting for more than one-fifth of the increase in global demand to 2035.
About a third of the global increase in gas output comes from unconventional sources (shale gas, coal-bed methane and tight gas) in the U.S. and, increasingly, from other regions.
Projected demand, in a barrels a day, for oil in 2035. That's 15 million barrels more than in 2009.
Amount of the projected net increase in demand accounted for by non-OECD countries.
More than half of the projected jump in demand is accounted for by China.
Drop between 2009 and 2035, in barrels a day, in oil demand in OECD countries.
Source: World Energy Outlook, International Energy Agency