Green policies expected to hit gas demand

Less than a fortnight ago, Christophe de Margerie, the chief executive of Total, beseeched politicians to discuss energy security, not only the environment, at the Copenhagen climate-change summit in December.

One of the industry's most plain-spoken ambassadors, he said: "Don't go to Copenhagen only with your concern about the environment. We also have a concern over energy access. If you take only one [concern with you], we are dead and we don't want to die."

His linking of the two issues has been underscored by the findings of the International Energy Agency, the rich countries' watchdog.

In an unauthorised draft of the World Energy Outlook, its annual report, it concludes that the world's dependence on natural gas would drop dramatically if environmental policies were enacted to limit carbon emissions. The IEA would not comment on the findings before the report's launch next Tuesday.

If environmental policies are put in place to stabilise greenhouse gases at levels that scientists believe will give the world a good chance of avoiding a sharp rise in temperatures, they will have a significant effect on gas demand, the IEA believes.

Increases in energy efficiency and faster growth in renewables such as windpower and nuclear energy would reduce gas consumption by 5 per cent by 2015 and 17 per cent by 2030 compared with the business-as-usual scenario.

If demand were to fall in this way, the US would become largely self-sufficient and Europe would rely less on Russian gas, long an area of acute anxiety among European Union officials.

If environmental policies being discussed today were passed, demand for gas in Europe would not recover to 2008 levels of 542 billion cubic metres until 2020 and would fall away to 525bcm by 2030, prompting a drop in imports from Russia and the Middle East.

If Europe did not cut gas demand, it would find itself again dependent on Russia in the longer term. That is because production from many European gas fields, which are relatively old, is declining rapidly.

Europe, and especially the EU, is having to battle declining production. EU gas production is expected to drop to 100bcm by 2030, from 214bcm in 2008.

UK production of 73bcm is expected to slip to 44bcm by 2015 and 11bcm by 2030 even if no environmental policies are passed.

Europe and Asia will have cheap new alternatives in gas supply in Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan, the IEA notes.

Russia holds a quarter of the world's gas reserves, but before 2015 no significant increases are expected from any regions except for the Yamal peninsula.

In the US, the situation is slightly different, says the IEA, largely because of its large reserves of natural gas trapped in shale rocks. New technology that allows companies to break the rock and drill horizontally has opened up vast new areas of supply, helping to nearly eradicate the need for liquefied natural gas imports from abroad.

"The looming glut in gas-export capacity essentially results from factors on the supply and demand sides: an ongoing surge in LNG capacity coming on line and a dramatic improvement in the prospects for unconventional production in North America . . . and the unexpected slump in demand," the IEA said. "In the short term at least, trade will not grow as quickly as most investors in new LNG and pipeline capacity originally expected."

North America has 12 LNG terminals with a capacity of 145bcm a year and five more under construction, plus one being extended. This will bring its import capacity to 214bcm.

The 15 additional projects that have approval to go ahead will not see the light of day, the IEA concludes. By 2030 much of the capacity will stand idle with only 35bcm needed if environmental policies are passed, it says.

But Robin West, founder of PFC energy, the consulting firm, and a director at Cheniere, which builds LNG plants in North America, doubts the demise of US LNG. "I would take this with a pinch of salt," he says. "The US is the largest and most liquid market. LNG may be a smaller part of the mix but it will be part of the mix."

He noted that "clean coal" was an oxymoron and that carbon capture and storage facilities that would make coal competitive even if governments put a price on carbon was a long way from being commercial.

For Mr de Margerie and other oil executives, environmental policies may reduce the chance of a supply crunch in gas (and also in oil). But it also means they will have to find new ways of making money in a world that will continue to have more gas than it needs if Copenhagen goes well.