Vast newly discovered natural gas resources and the expectation that demand for the fuel will rise substantially in fast-growing economies are ushering in a "Golden Age of Gas," according to the Paris-based International Energy Agency.

Ratcheting up its projections about natural gas consumption, an IEA report yesterday said gas's share of the global energy mix will surpass coal's in the next two decades and by 2035, gas demand will increase by more than 50 percent.

The IEA forecast goes as far as some of the most optimistic gas industry projections. It also bolsters the assumption that China, India and the Middle East will lean more heavily on gas as a source of power generation. To meet the demand by 2035, IEA found that gas production will have to be about three times the volume of gas produced in Russia today.

The confluence of widely dispersed and abundant shale gas reserves, competitive prices and emerging demand drives IEA's conclusions. But the top global adviser on energy issues reiterated concern among energy and climate change analysts that cheap and abundant gas will displace some zero-carbon power projects expanding nuclear and renewable energy. That has broader implications for cutting greenhouse gases tied to climate change.

Natural gas "is far from enough on its own" to put the world on a carbon emissions path toward an average global temperature increase of no more than 2 degrees Celsius. "Natural gas displaces coal and to a lesser extent oil, driving down emissions, but it also displaces some nuclear power, pushing up emissions," says the report.

IEA cut its assumptions about nuclear power expansions after the recent earthquake in Japan, as Germany plans to move away from nuclear power and as building nuclear power plants becomes more expensive.

"The combination of more competitive gas prices, policy changes in China to 2015, a more restricted outlook for nuclear power and increased future uptake of [natural gas vehicles] results in a significant increase in natural gas demand over the outlook period," the report says.

A bullish outlook
Onshore gas drilling has taken off in the United States and has grabbed the imagination of nations in Europe and Asia that are in search of more energy and lower carbon emissions. American gas producers and oil services giants such as Halliburton and Schlumberger pioneered technology that could tap gas embedded in massive shale-rock formations across large swaths of the central and eastern United States.

In the past five years, gas producers have increased U.S. reserves about 40 percent by exploring shale basins stretching across Texas, Louisiana and Arkansas, in the upper Midwest and the Marcellus Shale basin in the Northeast. An onshore gas boom once led by small and mid-sized drillers is now increasingly controlled by multinational energy producers like Exxon Mobil Corp. and Chevron Corp.

Even so, the shale gas boom has attracted a lot of critics. Environmental and public health groups contend the industrial process of horizontal drilling and hydraulic fracturing in urban basins could contaminate groundwater supplies. That, plus concerns about air emissions and disposal of toxic waste, is driving inquiries at the federal level by U.S. EPA and the Department of Energy.

The controversial production process is broadly called "fracking," during which drillers blast a mixture of water, sand and chemicals roughly 8,000 feet underground. Doing so creates fissures in the shale that release gas up a well.

IEA cushioned its bullish outlook that gas will probably remain cheap and compete with coal and oil. It listed a number of uncertainties that could slow the growth in gas, including lower economic growth that could dampen demand, bigger production costs than expected, big strides in energy efficiency, and shifts in the competitiveness of other power sources and fuels.

China is building import terminals
Because there is so much competition in the energy sector, gas production and demand rely on competitive pricing. IEA analysts say significant amounts of shale gas, tight gas and coal-bed methane can be produced at between $3 and $7 per million British thermal units. In the past few years, drillers have been able to produce gas out of the largest U.S. shale fields for costs at the lower end of that range.

Based on the high-production scenario, "from 2010 gas use will rise by more than 50 percent and account for over 50% and account for over 25% of world energy demand in 2035 -- surely a prospect to designate the Golden Age of Gas," said IEA.

China is a significant piece of the puzzle. According to IEA, China will be among the largest gas producers and buy more than half of its supply off the international market. Gas accounts for less than 3 percent of China's power generation today, but analysts expect that to steadily increase. Import terminals are under construction along China's coast, and higher prices and international cooperation are pushing up domestic production.

Coal dominates China's power sector, but the nation's 12th five-year plan encourages more gas use in the power sector, in part to help control carbon emissions.

"Higher gas usage will depend on sustained low gas prices, environmental regulation and sufficiency of supply, as well as developments in the coal sector," the analysts said about China. "Gas may also find a niche in the power sector in regions far from domestic coal supplies."

By 2035, IEA says, unconventional gas will be more than 40 percent of the global production increase, and growth will mainly be in North America, China and Australia.

Australia, which is the largest coal exporter, has been gearing up to produce and ship coal-bed methane. Indonesia is also starting to produce more gas. Those developments could feed demand in Asia.

Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC., 202-628-6500