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IEA sees LNG playing big role in gas globalisation, but warns on costs

IEA executive director Maria van der Hoeven

IEA executive director Maria van der Hoeven

3rd June 2014

By: Terence Creamer

Creamer Media Editor

  

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With South Africa moving to materially raise the profile of gas in its energy mix – probably initially through the importation of liquefied natural gas (LNG) – the International Energy Agency (IEA) has cautioned that gas transportation costs could dampen prospects for “much cheaper gas supplies”.

Speaking at the release in London on Tuesday of the ‘World Energy Investment Outlook’ executive director Maria van der Hoeven said LNG was set to play a more important role in the outlook for gas markets, supported by LNG infrastructure investments of over $700-billion by 2035.

However, the Paris-based agency said expectations that a surge in new LNG supplies would “totally transform gas markets” had to be tempered by recognition of the high capital cost of LNG infrastructure and transportation.

It said LNG transportation typically accounted for at least half of the cost of gas delivered over long distances and could be up to ten times higher than moving an equivalent amount of coal or oil around the world.

“Understanding the scale of this investment in new liquefaction facilities and LNG tankers, and what this means for the costs of delivering LNG, should help to provide a realistic assessment of the price at which future LNG will be available,” she said.

She also questioned “expectations in some places” that new supplies from the US would result in the exportation of not just US gas, but also US natural gas prices, which were a fraction of those in Europe and Asia.

The report was published ahead of the release of the South African Department of Energy’s Gas Utilisation Master Plan, which could be made available for public comment during the course of June. The document has reportedly been designed to offer a framework for future gas infrastructure investment decisions, while also interrogating both sources of demand and supply. The importation of LNG into key coastal ‘gas hubs’ has been included as an option.

The IEA report focused on the significant costs of investment in new liquefaction facilities and how these add to the cost of imported LNG, which could slow the rate at which new LNG could globalise gas markets.

Overall, though, the document estimates that gas investments would continue to rise and that LNG facilities would create new links between markets and improve the security of gas supply.

The report also estimated that $48-trillion in investment would be required between 2014 and 2035 to meet the world’s growing need for energy, broken down into $40-trillion-worth of energy-supply investment and $8-trillion for energy efficiency.

Yearly investment in energy supply of $1.6-trillion would need to rise to $2-trillion over the coming decades, with more than half of that amount needed simply to keep production at current levels. Similarly, yearly spending on energy efficiency, measured against a 2012 baseline, would need to rise from $130-billion currently to more than $550-billion by 2035.

“The reliability and sustainability of our future energy system depends on investment,” Van der Hoeven said, while warning that such investment would fail to materialise unless credible policy frameworks were put in place and long-term sources of finance secured.

“There is a real risk of shortfalls, with knock-on effects on regional or global energy security, as well as the risk that investments are misdirected because environmental impacts are not properly reflected in prices.”

Edited by Creamer Media Reporter

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