Revisiting the “Golden Age of Gas”

In his presentation at Flame in Amsterdam, the Netherlands, Laszlo Varro, Head of Gas Coal and Electricity Markets, International Energy Agency (IEA), recalled that he had just started at the organization when it came up with the concept of the “Golden Age of Gas” in 2011. Now, he said, is a good time to revisit the campaign and see how things turned out. Of course, there is both good and bad news for gas.

He offered, “The good news is that shale gas production in the US is actually running 10 years ahead of schedule: it is as much now as we predicted for the 2020s, so the US industry is beyond the golden age – perhaps in the platinum or diamond age of gas, defying gravity.”

In 2011, exports of US shale gas was considered quite a radical concept, according to Mr. Varro, who said that today it has become part of the conventional wisdom.

“Together with Canada and Australia, the notion that triple A-rated, stable, friendly, geopolitically secure democracies are becoming the largest new supply sources of internationally-traded LNG is increasingly important, because that creates the political and social foundations for trust in gas supply security,” he explained.

The bad news, he said, is that no progress has been seen in developing shale gas outside of North America, and it is a “stretch of the imagination” for it to happen in Europe or India.

Meanwhile, little progress has been made regarding carbon pricing.

He reported: “New LNG supplies are coming but every supply project has been a project management disaster.” In parallel, 350 gigawatts of new coal-fired generation came online, mostly in Asia, meaning they would likely be in service for decades.

“If replaced by CCGTs, they would use four times the new Australian LNG supply coming onto the market.”

According to Mr. Varro, the biggest single uncertainty is the future of shale gas in China, considering the country's extremely large geological resources, perhaps bigger than those of the US.

He said the success or failure could mean the fate of supplies roughly the size of current LNG exports from Qatar and Malaysia. “If shale gas fails [in China],” he explained, “we'll need another Qatar and another Malaysia.

“The importance of intercontinental gas trade is increasing as a consequence of the large regional discrepancies in the success and failure of shale gas; if everyone succeeded in developing and producing gas in their own backyard, they wouldn't bother liquefying and shipping it thousands of kilometers as it's a difficult and expensive technology,” he explained.

Regarding the largest natural gas producers like Russia and the US, he said that they were bridging the gap between production and consumption centers, making for an ever increasing role for LNG. From the Middle East, he said, exports are expected to stagnate because of increasing consumption there, and Australia is emerging as a significant driver of global export growth, “largely on the back of the projects that are just coming online.”

And North America, he said, is also emerging as a new export supplier, but with a caveat: “Despite all the media attention on US LNG exports, we actually believe that Africa will play a bigger role in supplying the growth of international trade than North America.”

Meanwhile, domestic coal consumption in the US is in trouble, according to Mr. Varro.

“If I combine climate policies with the local pollution regulations of the EPA and the economic thrust of shale gas, we see almost no new investments in coal-fired power in the US.”

He added that the US will see a very robust growth in domestic gas consumption in the next couple of decades. “There's no doubt that the majority of US shale gas production will supply the growth of domestic consumption – meaningful quantities will still be exported, but the domestic demand will constrain the role of exports,” he said.

Russia's becoming an LNG player has been put on hold, he said, because of the project finance needed and the difficulty presented by the sanctions.

“For pipeline projects, the building of 4,000 km of new pipeline in Siberia is something Russia knows how to do, he added, “even under sanctions.”

European imports of gas are set to increase , said Mr. Varro. “Europe is facing the simultaneous decline of three important domestic resources.” With expected reductions in domestic gas upstream, coal and nuclear too, renewables will not be enough to compensate, he opined.

Meanwhile, he observed what he said is a rift in Europe's geopolitical and energy policies.

“The perception is that trust in Russia is at an all-time low,” he noted. “At the same time, in the past year and a half we've seen uninterrupted flows of Russian gas in Europe and no gas supply security issues in the physical reality – but that's an important disconnect.”

And, he said there are mixed signals in Europe regarding climate change before the climate change talks in Paris. He reported, “The good news is, for the first time in a long time we had stagnant CO2 emissions in an environment of healthy global GDP growth. The last time CO2 emissions declined globally was 2009 in the depths of the financial crisis.”

Finally, he addressed the fallacy that cheap gas kills renewables – not according to the US experience, he said.

“Increasingly, the role of gas will be balancing the power system. In a low carbon European system there will be a need for 100 gigawatts of gas-fired generation to be used only when the wind is not blowing or the sun is not shining.”

Low carbon investments will be scaling up, concluded the IEA's Laszlo Varro.

-Drew Leifheit