Golden age of gas needs golden standards, says IEA's Fatih Birol

(Photo credit: EMA)

Dr Fatih Birol, Chief Economist at the International Energy Agency (IEA), today addressed a 350-strong audience of energy players at the second instalment of the EMA's Distinguished Speaker Programme (DSP). The first DSP took place on 29 April, with Tenaga Nasional Bhd Chairman, Tan Sri Leo Moggie,speaking on "The Dynamics of the Electricity Industry".

Speaking on the theme, "A Glimpse into the Energy Future", Dr Birol began by highlighting the major structural shift in energy demand from OECD countries such as the US, Japan, Korea and Australia, to non-OECD countries particularly China, India and the Middle East. In fact, the Chief Economist quipped that today's global energy demand is being driven by five countries and/or region, namely China, China, China, and then India and the Middle East. This, he said, could have substantial energy implications for global energy mix and security.

Announcing that the era of cheap oil is over, Dr Birol revealed how there has been structural changes in oil markets. For example, he shared how the vast majority of demand for oil is being driven by transportation, as opposed to power generation. Unlike power generation, cars, planes and automobiles can run on only oil and this results in rigid demand, said the Chief Economist. He continued by saying that demand for oil-dependent vehicles is only going to increase, putting pressure on depleting oil resources and the need to find alternative fuel choices for vehicles. He added that oil resources also lie in areas of increasing geo-political uncertainty, which can impact the security of oil supply.

On the other hand, Dr Birol said the picture for gas is much more positive in terms of both the amount of resources available and security of supply. IEA, which had recently published the report "Are We Entering A Golden Age of Gas", projected that global resources of natural gas will exceed 250 years of current production. In each region, resources will exceed 75 years of current consumption. Dr Birol also highlighted that the other major advantage of gas lies in its dispersion, which means gas is not confined to or concentrated in any one region.

Later, Dr Birol would tell audiences during the Q&A session that the Golden Age of Gas must be met by golden standards. For countries to clear the hurdles to gas, particularly to shale gas where its production has caused environmental concerns, governments would need to put the right regulations in place, while companies would have to use the right technology. Dr Birol also commented that with the upcoming LNG terminal due to come online in 2013, Singapore is well-placed to be an LNG hub for the region.

Turning to coal, Dr Birol reminded all that the fossil fuel is currently the backbone of the global electricity generation industry. He shared that half the world's electricity generation comes from coal, while the other half is made up of oil, gas and renewables combined. With electricity generation increasingly fuelled by gas, which is the cleanest fossil fuel, he highlighted that this would have a positive impact on climate change and carbon emissions. Nevertheless, this by itself is insufficient to limit the average global temperature rise to no more than 2 degrees Celsius.

In fact, this is a topic close to his heart, and Dr Birol shared his disappointment that an agreement was not reached in Copenhagen. While the Cancun Agreement does commit countries to reducing emissions, he put this into perspective by highlighting the current debate regarding cutting European emissions to either 20 or 30 percent, which really works out to roughly two weeks of Chinese emissions.

Given the current status quo of the international climate policy and efforts, Dr Birol feared that the "door to 2 degrees Celsius may be closing" soon.

The good news is that every government Dr Birol has encountered is pushing forward a strong renewables programme. He explained that government support is essential as the cost of renewables can be prohibitive. Again, he sees China emerging as the main driving force behind renewables and low carbon technology, in particular solar, wind, nuclear and electric cars. The Chief Economist said China's dominance of the market will positively impact clean technologies by providing the necessary scale to lower costs, but added the caveat that this could also have a converse impact on current cleantech companies.

The Fukushima tragedy has also had an impact on the global energy landscape, with nuclear's generation share expected to drop to 10 percent in 2035, from 14 percent today. This, he said, will leave a gap that must be filled by coal, gas or renewables, which in turn will result in almost 30 percent greater higher emissions from 2008-2035.

In summing up, Dr Birol felt that energy and geopolitics will become increasingly interwoven, with an impact on supply security. While existing and upcoming policies can make a difference, they fall well short of what is needed for a secure and sustainable energy future. The volatility and upturn in oil prices in particular, could undermine global economic recovery. Against this bleak backdrop, Dr Birol said a stronger penetration of natural gas could have profound and potentially positive implications for global energy markets, with China continuing to be instrumental in shaping our energy future.

Golden Age of Gas needs golden standards