IEA: Natural Gas and Oil Will Be a ‘Bedrock’ of Global Energy System for ‘Many Decades to Come’
The International Energy Agency’s (IEA) 2016 World Energy Outlook was released this week, and it notes that natural gas will be one of the “clear winners” over the next 25 years, while oil demand will continue to grow and production will remain “pivotal for energy security.”
These are two big reasons the report emphasizes that “the era of fossil fuels is far from over” and that “natural gas and oil will continue to be a bedrock of the global energy system for many decades to come.”
In the IEA’s New Policies scenario — which the agency considers the most likely set of circumstances, because it includes existing climate policies and assumes declared policy intentions are followed through on — global demand for natural gas will grow 50 percent by 2040. IEA predicts this will spark increased production, two thirds of which will come from the U.S., primarily from the Marcellus and Utica shale plays.
IEA forecasts natural gas demand growing an average of 1.5 percent year until 2040, stating,
“As a result of major transformations in the global energy system that take place over the next decades, renewables and natural gas are the big winners in the race to meet energy demand growth until 2040.”
“Low carbon fuels and technologies, mostly renewables, along with natural gas, win the race to meet the growth in energy demand, accounting for more than 80% of the increase to 2040.”
In fact, IEA forecasts a “second natural gas revolution” spearheaded by LNG trade
“A more flexible global gas market, linked by a doubling of trade in LNG, supports an expanded role for natural gas in the global mix. … The development of a more globalised market and its status as the least-polluting of the fossil fuels helps gas gain ground, overtaking coal in the global mix. Changes in market operation, business models and pricing arrangements are catalysed by a new diversity among suppliers, with North America, Australia, East Africa all emerging as major exporting regions.”
With U.S. LNG exports already booming, there are signs that this “second natural gas revolution” is already underway.
IEA also forecasts oil demand continuing to grow until 2040 “mostly because of the lack of easy alternatives to oil in road freight, aviation and petrochemicals.” In warning that oil “remains pivotal for energy security,” the report states that approvals of new conventional crude oil projects in 2015-16 have fallen to their lowest levels since the 1950s, and that if approvals remain low in 2017, an “unprecedented” effort will be needed to avoid a supply-demand gap in a few years’ time.
That said, IEA claims that further U.S. shale development will be absolutely essential, noting “U.S. tight oil provides a potential lifeline,” adding, “If oil prices rise in the short term, then shale producers can react quite quickly to put more oil on the market…”
The latter statement is even more relevant in the wake of this week’s announcement from United States Geological Survey (USGS) that the Wolfcamp Shale area in the Permian Basin may have may have an estimated 20 billion barrels of continuous oil. This new discovery is 19 times larger than in the Eagle Ford Shale and three times larger than in the Three Forks region of the Bakken Shale, so it appears the U.S. shale industry is in an even better position to respond to a potential global supply shortfall than the IEA anticipated.
All told, the IEA report clearly indicates “natural gas and oil will continue to be a bedrock of the global energy system for many decades to come,” and the U.S. shale represents that bedrock both literally and figuratively.