The potential for a golden age of gas comes along with a big "if" regarding
environmental and social impact. The International Energy Agency (IEA)--the "global
energy authority"--believes that this age of gas can be golden, and that unconventional
gas can be produced in an environmentally acceptable way.
In an exclusive interview with Oilprice.com, IEA Executive Director Maria
van der Hoeven, discusses:
- The potential for a golden age of gas
- What will the "age" means for renewables
- What it means for humanity
- The challenges of renewable investment and technology
- How the US shale boom is reshaping the global economy
- Nuclear's contribution to energy security
- What is holding back Europe's energy markets
- The next big shale venues beyond 2020
- The reality behind "fire ice"
- Condensate and the crude export ban
- The most critical energy issue facing the world today
Interview by. James Stafford of Oilprice.com
Oilprice.com: In 2011, the IEA predicted what it called "the golden
age of gas," with gas production rising 50% over the next 25 years. What does
this "golden age" mean for coal, oil and nuclear energy--and for renewables?
What does it mean for humanity in terms of carbon emissions? Is the natural
gas boom lessening the sense of urgency to work towards renewable energy solutions?
IEA: We didn't predict a golden age of gas in 2011, we merely asked
a pertinent question: namely, are
we entering a golden age of gas? And we found that the potential for such
a golden age certainly exists, especially given the scale of unconventional
gas resources and the advances in technology that allow their extraction. But
the potential for a golden age of gas hinges on a big "if," and we elaborated
on this in 2012 in a report called " Golden
Rules for a Golden Age of Gas". Exploiting the world's vast resources of
unconventional natural gas holds the key to golden age of gas, we said, but
for that to happen, governments, industry and other stakeholders must work
together to address legitimate public concerns about the associated environmental
and social impacts. Fortunately, we believe that unconventional gas can be
produced in an environmentally acceptable way.
Under the central scenario of the World Energy Outlook-2013, natural
gas production rises to 4.98 trillion cubic metres (tcm) in 2035, up nearly
50 percent from 3.38 tcm in 2011. But we have always said that a golden age
of gas does not necessarily imply a golden age for humanity, or for our climate.
An expansion of gas use alone is no panacea for climate change. While natural
gas is the cleanest fossil fuel, it is still a fossil fuel. As we have seen
in the United States, the drastic increase in shale gas production has caused
coal's share of electricity generation to slide. Of course, there is also the
possibility that increased use of gas could muscle out low-carbon fuels, such
as renewables and nuclear, from the energy mix.
OP: When will we see "the golden age of renewables"?
IEA: Although we have not yet predicted a "golden age" of renewables,
the current, rapid growth of renewable power is a bright spot in an otherwise
bleak picture of global progress towards a cleaner and more diversified energy
mix. Still, the investment case for capital-intensive, low carbon power technologies
carries challenges. We need to distinguish between two situations:
-
In emerging economies, renewable power often provides a cost-competitive
alternative to new fossil based generation and are perceived as part of the
solution to questions of energy supply, diversification, and economic development.
In China, for example, efforts to reduce local pollution are stimulating
major investments in cleaner energy.
-
By contrast, in stable systems with sluggish demand, no technology is competitive
with marginal electricity prices, due to overcapacity. Governments are nervous
about increasing investment in low-carbon options which impact on consumer
prices, and this is causing policy uncertainty. But long term energy security
and environmental goals need to be kept in mind.
The overall outlook for renewable electricity remains positive, even as the
outlook can vary strongly by market and region. However, the electricity sector
comprises less than 20% of total final energy consumption. The growth of renewables
in other sectors such as transport and heat has been more sluggish. For a golden
age of renewables to materialise, greater progress is needed in these areas,
for example, with the development of advanced biofuels and more policy frameworks
for renewable heat.
OP: How is the shale boom reshaping the global financial and economic
system? Who are the winners and losers in this emerging scenario?
IEA: One of the key messages of our World
Energy Outlook-2013 is that lower energy prices in the United States
mean that it is well-placed to reap an economic advantage, while higher
costs for energy-intensive industries in Europe and Japan are set to be
a heavy burden.
Natural gas prices have fallen sharply in the United States - mainly as a
result of the shale gas boom - and today they are about three times lower than
in Europe and five times lower than in Japan. Electricity price differentials
are also large, with Japanese and European industrial consumers paying on average
more than twice as much for electricity as their counterparts in the United
States, and even Chinese industry paying almost double the US level.
Looking to the future, the WEO found that the United States sees its
share of global exports of energy-intensive goods slightly increase to 2035,
providing the clearest indication of the link between relatively low energy
prices and the industrial outlook. By contrast, the European Union and Japan
see their share of global exports decline - a combined loss of around one-third
of their current share.
OP: The IEA has noted that the US is no longer so dependent on Canadian
oil and gas. What could this mean for pending approval of TransCanada's Keystone
XL pipeline? How important is Keystone XL to the US as opposed to its importance
for Canada?
IEA: The decision on the Keystone matter is one that must be taken
by the United States Government. I am afraid it is not for the IEA to comment.
OP: With the nuclear issue taking center stage in Japan's election
atmosphere, is Japan ready to pull the plug entirely on nuclear, or is it too
soon for that?
IEA: This year's World Energy Outlook, which we will release
in November 2014, will carry a special focus on nuclear energy, so please stay
tuned. While I won't discuss what Japan should do, I will say that every country
has a sovereign right to decide on the role of nuclear power in its energy
mix. Nevertheless, nuclear is one of the world's largest sources of low-carbon
energy, and as such, it has made and should continue to make an important contribution
to energy security and sustainability.
A country's decision to cut the share of nuclear in its energy mix could open
up new opportunities for renewables, particularly as some phase-out plans envision
the replacement of nuclear capacity largely with renewable energy sources.
However, such a decision would also likely lead to higher demand for gas and
coal, higher electricity prices, increased import dependency on fossil fuels
and electricity, and a more difficult path towards decarbonisation. Such a
scenario would therefore make it much more difficult for the world to meet
the 2°C climate stabilisation goal, and have potentially negative impacts
on energy security.
OP: What is the key factor holding back European energy markets?
IEA: Europe has quite a few advantages but also many hurdles to overcome.
If I had to pick one key factor that is holding back European energy markets,
I would say it is the lack of cross-border interconnections. Let me explain
what I mean. As we showed in WEO 2013, Europe's competitiveness is under
pressure, as energy price differences grow between Europe and its major trading
partners - the US, China and Russia. High oil and gas import prices combined
with low gas and electricity demand, following the recession, are impacting
European economies.
Europe should accelerate the use of its indigenous potential and reap the
social and economic benefits from energy efficiency, renewable energies and
unconventional oil and gas. In open economies, there are significant advantages
to be gained from free trade and a large energy market. One example: Today,
we cannot make use of competitive electricity prices across the EU, as physical
trade barriers exist and markets remain national. Europe is failing to achieve
its potential. The electricity grid and system integration is very low, which
also serves as a barrier to the full and efficient exploitation of renewable
energy potentials. This is why addressing the issue of cross-border interconnections
is so important.
OP: Where do you foresee the next "shale boom"?
IEA: According to WEO projections, there will be little non-North
American shale development before 2020 due to the much earlier stage of exploration
and the time needed to build up the oil field service value chain. Beyond 2020,
we project large-scale shale gas production in China, Argentina, Australia
as well as significant light tight oil production in Russia. The current reform
proposals in Mexico have the potential to put Mexico on the top of that list
as well, but they need to be properly implemented.
OP: What is the realistic future of methane hydrates, or "fire ice"?
IEA: Methane hydrates may offer a means of further increasing the supply
of natural gas. However, producing gas from methane hydrates poses huge technological
challenges, and the relevant extraction technology is in its infancy. Both
in Canada and Japan the first test drillings have taken place, and the Japanese
government is aiming to achieve commercial production in 10 to 15 years.
One thing I always mention when I am asked about methane hydrates is this:
It may seem far off and uncertain, but keep in mind that shale gas was in the
same position 10 to 15 years ago. So we cannot rule out that new energy revolutions
may take place through technological developments and price incentives.
OP: Have we hit the "crude wall" in the US, the point at which oil
production growth may end up slowing due to infrastructure and regulatory constraints?
IEA: In January 2013, the IEA's Oil
Market Report examined the possibility that as surging production
continues to move the US closer to becoming a net oil exporter, there may
come a time when various regulations, particularly the US ban on exports
of crude oil to countries other than Canada, could have an adverse impact
on continued investment in LTO - and thus continued growth in production.
We called this point the "crude wall".
A year later, in our January 2014 Oil Market Report, we noted that
with US crude oil production exceeding even the boldest of expectations in
2013 by a wide margin, the crude wall now seems to be looming larger than ever.
Having said that, challenges to US production growth are not imminent. Potential
US growth in 2014 seems a given, even against the backdrop of resurgent non-OPEC
supply growth outside North America.
OP: How is this shaping the crude export debate and where do you foresee
this debate leading by the end of this year?
IEA: You are better off asking my friends and colleagues in Washington!
This is obviously a sensitive topic. Different people feel differently about
it, often very strongly. Oil policy always is the product of multiple, sometimes-competing
considerations.
OP: What would lifting the ban on crude exports mean for US refiners,
and for the US economy?
IEA: Many refiners and other major oil consumers have said they support
keeping the ban amid worries that allowing exports would result in higher feedstock
costs and erode their competitive advantage, or shift value-added industry
abroad. On the other hand, oil producers have in general come out in favour
of lifting the ban, arguing that the "crude wall" may become so large that
it cannot be overcome; they see the possibility of a glut causing prices to
slump and thereby choking off production. We have not produced any detailed
analysis on the economic impact of lifting the ban, so I cannot comment on
that part of your question.
OP: Are there any other ways around the "crude wall" aside from lifting
the export ban?
IEA: As we wrote in our January 2014 Oil Market Report, much
of the LTO is produced in the form of lease condensate, which is most optimally
processed in a condensate splitter. There is currently only one such facility
in the United States, although at least five others are in various stages of
planning and construction.
I mention this issue because one could imagine a scenario under which lease
condensate is excluded from the crude export restriction. The US Department
of Commerce, which enforces the export ban, includes lease condensates in the
definition of crude oil. However, this definition could be changed, or the
Commerce Department could simply issue lease condensate export licenses at
the behest of the President.
OP: How will the six-month agreement to ease sanctions on Iran affect
Iranian oil production? And if international sanctions are indeed lifted after
this "trial period", how long will it take Iran to affect a real increase in
production?
IEA: The deal between P5+1 and Iran doesn't change the oil sanctions
themselves. The oil sanctions remain fully in place though the P5+1 agreed
not to tighten them further. Relaxing insurance sanctions doesn't mean more
oil in the market.
As for the second part of your question, I am afraid I can't answer hypotheticals
and what-ifs.
OP: What is the single most critical energy issue in the US this year?
IEA: I think that if you take the view that the energy-policy decisions
you make now have ramifications for many decades to come, and if you believe
what scientists tell us about the climate consequences of our energy consumption,
then the single most critical energy issue in the US is the same issue for
every country: what are you going to do with your energy policy to mitigate
the risk of climate change? Energy is responsible for two-thirds of greenhouse-gas
emissions, and right now these emissions are on track to cause global temperatures
to rise between 3.6 degrees C and 5.3 degrees C. If we stay on our present
emissions pathway, we are not going to come close to achieving the globally
agreed target of limiting the rise in temperatures to 2 degrees C; we are instead
going to have a catastrophe. So energy clearly has to be part of the climate
solution - both in the short- and long-term.
OP: What is the IEA's role in shaping critical energy issues globally
and how can its influence be described, politically and intellectually?
IEA: Founded in response to the 1973/4 oil crisis, the IEA was initially
meant to help countries co-ordinate a collective response to major disruptions
in oil supply through the release of emergency oil stocks to the markets.
While this continues to be a key aspect of our work, the IEA has evolved and
expanded over the last 40 years. I like to think of the IEA today as the global
energy authority. We are at the heart of global dialogue on energy, providing
authoritative statistics, analysis and recommendations. This applies both to
our member countries as well as to the key emerging economies that are driving
most of the growth in energy demand - and with whom we cooperate on an increasingly
active basis.
Source: http://oilprice.com/Interviews/The-Golden-Age...th-the-IEA.html
Interview by James Stafford of target="_blank" Oilprice.com
