- The Writer holdsan MSc in Eurasian Political Economy & Energyfrom King’s College London andalso anMA in European Studies from Sabancı University.
Do recent changes in the natural gas industry cast a pall over the “golden age of gas�?
Projected to meet one fourth of global energy demand, “natural gas is poised to enter a golden age� according to a special report published by the Paris-based International Energy Agency (IEA) in 2011. The report foresaw a substantial growth in natural gas demand taking over coal, the second biggest primary energy source after oil. This has played out by gas accomplishing an annual growth of 2 percent by 2030, surpassing the 1.2 percent overall world energy growth. The IEA also forecasted that by 2035, overall consumption of natural gas would reach 25 percent. In addition between 2010 and 2035, global gas demand would be equal to the overall growth in oil, coal and nuclear combined with a demand growth reaching 50 percent.
In recent years, natural gas has become a viable alternative supply source which is increasingly reaching almost every corner of the world. The discoveries of large natural gas fields in Mozambique and Tanzania have become major sources of attraction both for Japan and China. Additionally, the discoveries of gas fields near Egypt, Israel and Cyprus will likely change the energy map of the region once these sources come online. Given the fact that seven new LNG terminals will be ready in Australia in a short period of time, the price is likely to decrease due to increased output and more competition. In Japan, following the nuclear disaster in Fukushima, a spike in overall LNG demand occurred further enhancing LNG as an energy source.
Thanks to the development of horizontal drilling and hydraulic fracturing, shale gas has become a major source of energy for the U.S. This has raised expectations that the U.S. will be changing the old paradigm as a major gas supplier that Russia and the Middle East played out in recent decades while overall gas trade is forecasted to drop from 45 percent to 35 percent from 2010 to 2035.
With the help of abundantly available natural gas in the market and lower gas prices, the ‘golden age of gas� has somewhat been realized in North America, which has seen an increase in gas consumption by around 17 percent since 2009. Yet, in addition to the U.S. market, natural gas has also been performing well in other parts of the world, as forecast by the IEA back in 2011. The development of renewable energy, which has been incentivized by governments as a political instrument to fight against climate change along with sluggish economic growth around the world, has worked against the global expansion of natural gas. Although the Asian energy market has created optimism for the future of gas, nonetheless, Asian countries have preferred to invest in renewables as well as benefit from coal. Coal has been widely available locally and has been relatively cheaper and easier to operate than gas power plants. In recent years, the number of coal-fired power plants in Asia has reached 500 while another 1,000 of those are on the table.
Similarly, EU gas demand has been sluggish given weak economic performance. Even Japan, which has become one of the biggest LNG importers in recent years, is likely to utilize its nuclear power plants and increase its use of coal in the years ahead as a way of diversifying its energy portfolio. In 2015, IEA revised its outlook for the future of natural gas with a more cautiously optimistic forecast.
“The experience of the past two years has opened the gas industry’s eyes to a harsh reality: in a world of very cheap coal and falling cost of renewables, it was difficult for gas to compete.�
The current gas price slump, which has resulted in heavy losses for gas producers, is due to short demand and booming supply since millions of tons of gas are coming online. Furthermore, gas consumers are unwilling to stick with oil indexed long-term fixed contracts which include large volumes of gas. The oil price slump seen over the last fifteen months might appear as an incentive for gas buyers since the majority of gas contracts have traditionally been linked to oil prices. However, due to market uncertainties resulting from depressed prices as well as hopes of obtaining bargain gas prices, many gas buyers prefer short-term spot markets that offer more flexible terms. Gas analysts also expected that a drop in gas prices would prompt stronger demand however, the gas market has not reacted as expected.
Facing fierce competition with coal and renewable energy, natural gas has been losing ground in recent years. Given the enormous wave of supply created in recent years in tandem with stubbornly low prices, the industry pioneers have failed to convince the governments, stakeholders and policy makers that natural gas, as a clean, flexible and cheap fuel, is one of the major clean energy sources which would benefit all not only in combating climate change but also in moving towards a clean energy future. In the absence of strong environmental regulations, the market for a plentiful supply of cheap coal has grown stronger in Asia. Recent changes in the natural gas industry have stalled the ‘golden age of gas� being realized as anticipated by the IEA.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.