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Monday, June 24, 2013

The President's climate plan could be a huge opportunity for natural gas


Tomorrow, President Obama is expected to announce a plan to reduce the country’s greenhouse-gas emissions 17 percent below 2005 levels. That could present a huge opportunity for natural gas’ prospects globally.

The opportunity can be seen in two reports.

The International Energy Agency (IEA) says that natural gas will continue to increase its share of the global energy mix, growing at 2.4% per year between now and 2018. However, that projected growth rate is lower than the IEA’s forecast last year of 2.7%.   

IEA’s Medium-Term Gas Market Report sees gas emerging as a significant heavy-duty transportation fuel, driven by abundant supplies as well as concerns about oil dependency and air pollution, once the dearth of fueling infrastructure is addressed.

While the report projects growth in gas’ share of the global energy mix, IEA says that gas faces challenges. In the United States, in the absence of policy constraints on coal-fired plants, recovering gas prices will prompt coal to regain some of its share of the power market, putting U.S. greenhouse-gas emissions from the power sector back on a growing track. According to the U.S. Energy Information Administration, that is already happening - natural gas consumption by U.S. power plants has dropped 10% in 2013, and is projected to fall by an additional 12% in 2014.  
The policy landscape is about to change.
  • Non-conventional production will remain a North American phenomenon in the medium term. The United States alone represents over one-fifth of the global increase in gas production, benefiting from technological developments and cost-efficient field services. Exploration in other regions continues, but is hindered by geology, infrastructure and environmental constraints as well as lack of social acceptance.
  • Natural gas plays a major role in addressing air quality concerns in China. China will account for 30% of the growth of global gas demand. Despite the country’s impressive progress on domestic production, this still puts China on a path of increasing import dependency: In the next five years, China absorbs the entire production increase from Central Asia as well as one-third of the global increase in LNG [liquid natural gas] supply.
  • The tightness of LNG supply enables some recovery of Russian exports to Europe. Nevertheless, in the longer term, Russia will be able to maintain its premier position in the world of gas only by developing the resources and infrastructure for large-scale Asian exports.   
The Invisible Hand is not an effective energy or climate policy.  The President’s plan will bear close scrutiny, and will need support - perhaps especially by the natural gas industry.

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