Energy Security 'Less of a Worry': IEA
There is less need than before to worry about energy security as soaring renewable energy supply and growing electricity demand implies less cross-border trade, according to the International Energy Agency's (IEA) annual World Energy Outlook published November 14.
The WEO contains for the first time a special focus on natural gas, as the IEA asks if it is a fuel for all seasons. The rise of gas will be slower than before, at 1.6%/yr in the New Policies Scenario, but it will be faster in industry too than in the past. That is perhaps because its role in power, the previous driver, will shrink as it becomes a flexibility provider when renewable energy cannot be dispatched. Moreover in some countries coal will win on price alone.
The IEA picked out four areas of fundamental change, which turn previous forecasts on their heads: the US is going to be the 'undisputed leader' in oil and gas, thanks to shale, allowing it to become an exporter; solar photovoltaics are the cheapest source of electricity in many countries including China and India; China's switch from a manufacturing to a services-led economy as the population ages and becomes wealthier will have a profound impact on energy demand; and electricity demand is growing fast owing to more cooling, electric vehicles and digitisation.
These changes combined with growing energy efficiency will make energy more affordable and less prone to supply disruptions, but there are still some threats, said IEA executive director Fatih Birol at the report's London launch. Longer LNG shipping lanes means LNG security needs to be revised; and also the many 'energy pathways' ahead imply many pitfalls for governments and industry if they fail to read the signs of change. And the IEA remains concerned about the historic slump in investment upstream in some key areas of the globe, suggesting price spikes are on the cards.
Where gas is concerned, LNG will have a growing share of the future supply, accounting in 2016 for 39% of the long distance trade of 706bn m³, but for 59% of the 1.23 trillion m³ forecast in 2040. IEA notes that contractual restrictions are reducing, a process that will accelerate as more US LNG comes to market sold free on board; but also that long-term buyers are thin on the ground, pointing to a more fragmented and opportunistic market.
However the future for gas will be secure as long as it remains price-competitive against coal, says the IEA, warning of price spikes owing to under-investment and the cheapness of coal, which surprisingly can displace cleaner gas. The IEA also sees methane leakage as a serious challenge that the industry must tackle and yet with just 1.76% of all gas that enters the value chain being lost, it has a smaller footprint than coal, it says: any percentage below 3% is a win for gas, environmentally speaking.
The IEA says carbon capture, use and storage (CCUS) is very important, but there are very few projects operating as the carbon price is too low, and he said it would be risky for companies to wait until it reached a critical level, such as $50/metric ton before investing in CCUS.
Responding, the upstream lobby group International Association of Oil & Gas Producers (IOGP) said that oil and gas were much better placed in terms of abatement potential than coal. “We have been working to reduce methane emissions for nearly two decades now, and remain fully committed to achieving additional progress” said IOGP’s executive director Gordon Ballard. “Countries around the world are counting on us to deliver safe, affordable and sustainable energy. This inspires us to keep doing our best." He also said that the IEA’s special focus on natural gas is "a welcome initiative. It makes the advantages and the versatility of this fuel known to everyone. The ability of gas to provide flexibility to energy systems while reducing emissions of CO2 and air pollutants is simply unparalleled."