Natural gas used less than predicted

The share of natural gas in the global energy mix is increasing more slowly than first predicted by the International Energy Agency.

Supply growth in the Middle East will slow, says the agency, but gas is playing a significant role in curbing the use of oil to generate electricity at home and, therefore, boosting crude exports.

"The growth of gas in the Middle East plays a measurable role in slowing the growth of domestic oil demand of the region, especially in the power sector," said Maria van der Hoeven, the IEA's executive director.

The IAE - which predicted a "golden age" for gas when it launched an annual outlook report for the fuel last year - has pared its initial forecast in its subsequent report, released yesterday.

In its latest Medium Gas Market Report, the agency expects to grow its share of the global fossil fuel demand by 2.4 per cent each year to 2018, down from 2.7 per cent.

World gas production increased by 2.1 per cent in 2012, with growth driven by the North American shale revolution, as new extraction techniques are boosting supply.

In the Middle East, production grew by 5 per cent last year, and one third of additional supply came out of the region.

Qatar, Iran and Saudi Arabia have added the biggest quantities, but stronger growth is prevented by low gas pricing, which undermines investment in the sector.

"Gas remains the fuel of contradictions," said Mrs van der Hoeven in the report. "Large-scale gas flaring continues to take place in countries plagued by energy poverty, while runaway domestic demand at highly subsidised prices constrains the operations of very profitable export terminals."

Up to 2018, regional gas supply growth is only predicted at 2 per cent, below the global average.

Surging demand for electricity is limiting exports, and even reversing trade flows, as Gulf countries such as the UAE have taken to imports of liquefied natural gas (LNG).

But the declining share of oil used in power generation, practised in Saudi Arabia in particular, frees up crude that can be exported at about US$100 a barrel.

The political instability that resulted from the Arab Spring will also undermine investment into the region's gas sector, said the IEA.

Globally, cheap coal is competing with gas in the power sector, and gas demand is hampered further by anaemic economic growth in the euro zone.

But gas, the least polluting of the fossil fuels, will find increasing use in transport, a sector in which crude oil has so far been the unchallenged propellant.

Compressed natural gas accounted for 1.4 per cent of transport fuel in 2012, a share that will rise to 2.5 per cent by 2018, representing 10 per cent of additional demand.

The IEA predicts overall gas production to rise to 4 trillion cubic metres in 2018 from 3,427 bcm in 2012.