BERNE: A new “golden age of gas” could derail global efforts to fight climate change as indebted governments mull a switch to the cheaper fuel, says the International Energy Agency’s chief economist.
Government subsidies designed to promote renewable energy currently amount to around $ 70 billion globally, he says.
But governments may be tempted to drop them as new shale gas and export facilities of liquefied natural gas (LNG) in east Africa and Australia pressure prices lower.
“Governments are feeling more and more uncomfortable to put m oney in renewables especially in the days of austerity, and some governments are cutting their support,” Fatih Birol from the West’s energy watchdog said at an energy conference in Berne, Switzerland.
“The availability of cheap or lower gas prices are putting additional pressure on renewable energies,” he added.
Currently, natural gas prices of many exporters such as Russia, Norway and Qatar are high because they are sold under long-term contracts that are linked to oil, but suppliers are coming under increasing pressure by customers to reduce prices or allow more flexible pricing based on movements in the freely traded spot gas markets.
But Birol said that new supplies will undermine their ability to charge high prices in the long term.
In North America, a boom in unconventional shale gas exploration has led to sharp drops in domestic natural gas prices and the US is expected to begin exporting LNG by 2015, putting pressure on global gas prices and established pipeline suppliers such as Russia’s Gazprom and Norway’s Statoil.
“You will see more and more, even in Europe, gas available outside of major current gas exporters which can put downward pressure on prices and give more flexibility on importers to negotiate long-term contracts,” he later told Reuters.
Other analysts, however, say that shale gas exploration in Europe will not be big enough to break the dominance of established pipeline suppliers, and that the development of renewables will therefore remain important in order to meet energy demand and Europe’s emmissions reduction targets.
Birol said that any reduction in investment in renewable energy would increase the risk of an increase in global temperatures by 6 degree Celsius this century, describing the current trend as “catastrophic.”
“If there are no urgent and bold policies put in place the door to a 2 degrees trajectory, the door to a normal life for us and for our children, will be closed and will be closed forever,” he said.
The IEA has already said that global emissions hit a record in 2011, and that carbon emissions from countries switching from nuclear to other conventional power generation technologies such as gas or coal are likely to rise.
“You are wrong if you believe all this nuclear will be 100 percent replaced by renewable energy,” he told the conference.
The West’s energy agency, facing calls for an emergency stocks release, said earlier that global oil demand is poised to be depressed for the next 18 months while supply levels from OPEC countries are at fairly comfortable levels.
Sources have told Reuters the US is considering an emergency stocks release in a move to help suppress high oil prices, and other members of the International Energy Agency, such as France and Great Britain, could join the move. Some members of the IEA have opposed the release although its head has recently said high oil prices were a cause for concern.
The IEA, which represents developed energy consuming countries, made only one mention of “market rumors of an imminent release of US strategic stocks” in its monthly report while painting a supply-demand picture implying such a release would not be necessary.
The IEA said it made no significant changes to its global oil demand outlook and forecast it would grow at a steady rate of around 0.8 million barrels per day (bpd) or 0.9 percent in both 2012 and 2013.
“This modest growth rate reflects the combined effects of sluggish global economic activity, historically elevated oil prices and global improvements in energy efficiency,” it said.
It said that August OPEC liquids production growth, led by Nigeria, Angola and Iraq, failed to offset fully unplanned production outages in non-OPEC countries such as US output hit by a hurricane and North Sea output disruptions due to a strike in Norway and planned maintenances.
However, compared to a year ago, global oil production stands 2.0 million bpd higher due to increases from OPEC, which is pumping way above the levels required by the market and therefore contributing to a large stocks build across the world.
The IEA said the call on OPEC crude and stock change was projected to rise by 1.3 million bpd in the third quarter of 2012 to 31.1 million bpd due to a seasonal quarter-on?quarter uptick in demand of 1.4 million bpd.
However, a projected recovery in nonOPEC supplies in the fourth quarter of 2012 is forecast to cut back the ‘call’ on OPEC by a substantial 0.5 million bpd to just 30.6 million bpd versus its current output of 31.55 million bpd.
“China, South Korea, India and others are poised to increase liftings in September. In addition, a cargo was reportedly sold through the private sector after Tehran, in a bid to maintain exports, allowed for the first time sales outside of the state oil company,” the IEA said.
Increased exports, however, may be temporary, it added as both US and European officials have proposed to tighten sanctions further due to lack of progress in negotiations with Tehran over its nuclear program.
On the stocks front, OECD industry crude stocks contracted by 16.5 million barrels in July and a preliminary 23.7 million barrels in August on strong refining crude runs.
“Recent demand strength notwithstanding, low expectations of future demand are such that the OECD stock cushion actually looks more comfortable today when measured in days of forward demand than before the latest draws,” the IEA added.
Gas glut threatens climate battle
