LNG leads "second wave gas revolution", says IEA

World energy outlook 2016The International Energy Agency (IEA) says liquefied natural gas (LNG) will spearhead energy growth in Africa and the world, as economies adjust to new pledges outlined under the Paris agreement

Speaking at a press conference in London to mark the launch of the IEA's World Energy Outlook 2016, Dr Fatih Birol, executive director of the IEA, said the evolution in shale gas in the United States has paved the way for the breakthrough in LNG, with expected projects in the US and Australia to be followed by a second stream in Mozambique, Tanzania and Canada.

"As a result of that, the share of LNG in the international gas trade will be much higher than that of the pipeline trade," he commented.

Flexibilities in the global gas market, supported by a doubling in trade of LNG, propels forward the role of natural gas as a catalyst for a major transformation in the global energy system over the next few decades, members of the press heard.

"The story of continuity over the last decade and over the next decade is provided by natural gas," explained Laura Cozzi, head of the IEA's Energy Demand Outlook Division.

"Natural gas is the fuel in which we see growth in nearly all countries as it is being used across a different number of sectors from power generation to shipping and industry; it is very versatile in supplying to a large number of energy services."

Dr Birol says the LNG market is required to be competitive to compete with cheaper coal and renewable sources, which are often subsidised, to put pressure on exporters.

Changes in market operations, business models and pricing arrangements are aligned with a diversified supplier mix, with East Africa emerging as one of the major exporting regions. 


Changes in long distance gas trading

Recognising the coming of a second revolution in natural gas for LNG, Tim Gould head of IEA's Energy Supply Outlook Division, admitted the energy faces competition from oil, with the space for gas also being squeezed by renewables.

LNG's future success, he says, hinges on the way gas markets will operate internationally in the future.

"The rise in LNG is provoking some significant changes in those markets, spurring contractual changes and the removal of some rigidities like destination clauses restricting the ability to move cargos around the world," he explained.

"The upshot is by 2040, LNG takes the bulk of long-distance gas trade for the first time."

Low-carbon fuels and technologies such as renewables and natural gas are in pole position to meet the globe's energy demand – accounting for more than 80% of the increase to 2040 – while the share of oil and coal has been pegged back, says the report.

Africa's increasing population, Cozzi mentions, will over the next two and-a-half decades tap into the potential in hydro, solar and geothermal energy sources.

Investment is now shifting towards lower-carbon sources and while 60% of an estimated US$44tn into energy supply over the period to 2040 goes to fossil fuels, this share has declined, allowing natural gas to build its status. 

Renewables in particular have been branded the "growth story" of this year's energy outlook, with 60% of all new power generation capacity in 2040 coming from renewables.

The value of subsidies to fossil fuels has declined sharply from US$500bn in 2014 to US$325bn in 2015, aided by lower fuel prices but also sparked by wider pricing reforms.

While developing countries account for the lionshare of a 30% increase in energy demand to 2040, millions of people - including half a billion settled in rural areas of sub-Saharan Africa - will still be without access to electricity in 2040.

In the case of oil, global demand will continue to climb until 2040, predominantly due to a lack of easy alternatives to supply the road freight, aviation and petrochemicals industries.

The Middle East's share of global oil production is currently at 35 per cent – it's highest level for four decades, according to Dr Birol. 

However, demand for oil from passenger cars will decline, despite the number of road vehicles set to double in the next 40 years.

This is due mainly to improvements in efficiency, but also biofuels and a rise in electric car ownership.

"We see clear winners for the next 25 years  natural gas but especially wind and solar – replacing the champion of the previous 25 years, coal," added Birol.

"But there is no single story about the future of global energy: in practice, government policies will determine where we go from here."

The Paris Agreement, ratified by the EU on 5 October and effective 4 November, has targeted a limit on global warming to below two degrees as part of an ambitious move to tackle climate change.

Adopted by 195 countries at the Paris climate conference (COP21) in December 2015, the Paris Agreement is the first universal global climate deal. 

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