SIO GAS KWELI
U.S. to overtake Russia as top gas producer: IEA
A surge in unconventional supplies will see the United States overtake Russia as the world's biggest natural gas producer in 2017, but it will still need imports to feed a voracious appetite, the International Energy Agency (IEA) said on Tuesday.
A rapid rise in production of shale gas and oil trapped in difficult reservoirs has revolutionized the industry of the world's top fuel consumer, turning it from the biggest gas importer to a potential exporter and reducing its dependency on expensive crude shipments.
Despite low gas prices that have slowed the pace of drilling somewhat, the momentum of the shale gas boom led to the United States adding production equivalent to half the annual shipments of top liquefied natural gas (LNG) exporter Qatar in 2011, and it could soon overtake Russia as top producer.
"The United States is forecast to be one of the largest sources of incremental supply to 2017, where gas production continues to boom despite a difficult gas pricing environment... putting the United States slightly ahead of Russia," the IEA said in a report issued on Tuesday.
"High oil prices, driving the production of gas associated with light tight oil extraction, combined with substantial domestic consumption and new international opportunities, are expected to underpin continued expansion of U.S. gas production over the period."
The IEA expects total U.S. gas production to rise from 653 billion cubic meters (bcm) in 2011 to 769 bcm in 2017, while Russian gas output is expected to rise from 659 bcm last year to 757 bcm over the period.
But U.S. demand is also expected to surge from 690 bcm last year to 779 bcm in 2017, as a slump in prices over the last few years encourages U.S. industry to use more.
Although it is set to remain a net importer of around 10 bcm per year, with Canadian pipelines supplementing U.S. production in the north, the United States could export some gas from converted former LNG import terminals on the Gulf coast.
"The continued boom in unconventional gas in the United States may even herald the end of the hundred-year dominance of coal in U.S. power generation," said the agency, which advises 28 industrialized countries on energy policy.
Gas could displace coal as the leading fuel source for U.S. power stations by 2017, it said.
Abundant and cheap gas will be a blessing for many energy-intensive industries in North America but could be curse on their European competitors, the IEA said.
"The (European) industrial sector struggles amid prices three to four times higher than in the United States, which becomes a new competitor for European-based petrochemical and fertiliser industries," the IEA said.
"Unlike their U.S. counterparts, European industrials will not see any benefits of lower gas prices induced by shale gas developments."
Although shale gas has dominated the headlines, tight gas accounted for about half of the 16 percent of global unconventional gas output, the IEA said.
North America will likely continue to lead in shale gas output, but in other regions coal bed methane and tight gas will dominate, with shale potential limited beyond China and Poland.
[h=4]China leads demand [/h]
Global Gas demand is expected to rise by 576 billion cubic meters (bcm) per year to 3,937 bcm in 2017, and China will account for more nearly a quarter of that rise, the IEA said.
Over the five-year period covered in the report, China's demand will double to 273 bcm, up from 130 bcm in 2011. That will make China the world's third-largest gas user behind the United States and Russia, the IEA said.
U.S. demand will account for nearly 90 bcm of the rise as the power, petrochemical and fertilizer sectors boost consumption.
European gas demand is unlikely to recuperate to 2010 levels by 2017 due to slow economic growth, high prices and an increased dependency on renewables, the IEA said. European gas demand fell 9 percent in 2011, the agency added.
[h=4]Price, trade [/h]
LNG trade was unlikely to increase much until 2015 due to scant new production capacity coming online over the next two years, the IEA said.
Increasing demand will make more countries importers of gas, the IEA said.
Malaysia and Indonesia, currently among the top global exporters, as well as more than half of the countries in the Middle East are importing or will import natural gas, either through LNG or via pipeline, the IEA said.
Global trade in LNG increased 9.4 percent, the IEA said, but the global gas market remains fragmented leading to a wide variance in U.S., European and Asian prices.
"Despite the increasing LNG volumes available on global markets, the prospect of a global gas price not only did not materialize, but also looks increasingly less plausible," the report says.
"Asia still needs to develop a true market price, reflecting natural gas supply/demand balances rather than the fundamentals of the oil market."
Most gas in Asia is sold at prices benchmarked to oil, rather than on the basis of gas supply fundamentals as in the United States or Europe.
Prices for top LNG importer Japan rose to more than eight times the value of the U.S. market prices as Japanese utilities boosted imports to compensate for the shutdown in nuclear power plants after the Fukushima disaster.
