4 May 2007 - 17:01
  • News Code: 103793

PARIS -- A lack of investment is the biggest threat to secure natural gas supplies as the fuel takes a more dominant role and it is critical new projects get the go-ahead soon, the International Energy Agency (IEA) said yesterday.

In the short term, emergency reserves could help to deal with any unexpected shortfall as gas becomes a more global commodity, meaning supply problems are not confined to one region.

The IEA, adviser to 26 industrialised countries on energy, yesterday released its second Natural Gas Market Review following a similar publication last year that also sounded the alarm over insufficient investment and over-reliance on supplies from Russia and the Middle East.

“We are even more worried this year and see it (lack of investment) as the major threat to secure, affordable global gas supplies over the medium to longer term,” said Claude Mandil, head of the IEA, in a press statement accompanying the review.

“Natural gas is becoming an increasingly global commodity,” he added. “Developments in previously separate regional gas markets can no longer be considered in isolation.”

Liquefied Natural Gas (LNG) has played a major part in making gas more like oil, which is firmly established as a global energy source, and the IEA said LNG investment was particularly important.

Cooled to liquid form, LNG, unlike pipeline gas, can be shipped throughout the world.

Demand is growing and would be stimulated further if pipeline gas projects do not develop as expected, but surging costs and a lack of expertise could limit supply.

No final investment decisions were taken on any LNG export projects in 2006, while many already under way experienced delays.

A selection of LNG projects showed production delays averaged almost a year and average cost overruns were more than $2bn per project.

LNG production capacity is growing from 240bn cubic metres (bcm) in 2005 to 360 bcm by 2010 and by 2015 to 470 bcm, the IEA said.

Potentially the increase could be up to as much as 600 bcm, but “capacity increases after 2010-12 depend critically on new projects being sanctioned soon,” the market review said.

It said the possibility of the Gas Exporting Countries Forum becoming “analogous to Opec” would not improve the investment situation.

The forum at a meeting in April launched an expert study to look at ways of increasing its clout, although it insisted it was not seeking to become a price-fixing body.

One measure that could improve the gas supply situation would be the development of emergency strategies, including strategic gas reserves, the IEA said.

But emergency stockpiles would be extremely expensive and would not be “a silver bullet.”

Other measures would include an improved regulatory environment, greater energy efficiency and diversification.

Gas is under strain in part because it is being burned to generate power.

“Gas-fired power remains the default option for new power generation,” the IEA said. “There are large numbers of new coal and nuclear plants planned, but construction needs to start soon if (they) are to be operational before 2015.”

Expensive gas has the knock-on effect of creating expensive electricity and the IEA also warned yesterday power supplies required intelligent investment.

The challenge in the power sector was to ensure environmentally-friendly energy production as the developed world embarks on a heavy investment cycle.

“A window of opportunity now exists to push for a cleaner and more efficient generation portfolio that will have significant impact on the energy sector and the environment for the next 40-50 years,” Mandil said.

Above all, consumer countries should not be lulled into a false sense of security by the low energy demand during the exceptionally mild winter of 2006-2007.

“A return to more normal winter conditions in consuming countries will put strong pressure on gas supplies,” the IEA said.

 

PIN/REUTERS

News Code 103793

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