Meeting rising oil and gas demand while addressing global climate change more meaningfully will continue to be the world’s biggest energy policy challenges in 2019, International Energy Agency Executive Director Fatih Birol predicted.
“Economic growth, urbanization and industrialization—primarily in Asia—are set to drive global energy consumption 25% higher by 2040 in the IEA’s central scenario. This growth would be even more rapid without vital energy efficiency measures,” Birol told the US Senate Energy and Natural Resources Committee on Feb. 28.
Local air pollution concerns are increasingly motivating energy policies across Asia, which potentially could create significant LNG export opportunities for the US, Birol said.
“The IEA has long emphasized the role of China, India, and other countries in Asia in driving global natural gas demand, but the recent upswing has exceeded even our expectations. Satisfying expected gas demand growth in Asia would require additional supplies equal to building one new average-sized US LNG project every 5 months,” he said.
IEA also expects the US to play a substantial part in meeting the world’s future higher oil demand, Birol said in his written testimony. “We forecast that around 70% of the growth of world oil production to 2025 will come from the US. In fact, [it] has essentially compensated for recent production shortfalls in Venezuela and Iran, and, in the process, stabilized oil prices at a level conducive for global economic growth,” he noted.
Several US contributions
The US shale oil industry’s importance “cannot be overemphasized,” but it isn’t the country’s only contribution to an improved global energy outlook, Birol said. “We are increasingly optimistic about the impact of cost declines, technological improvements, and modular development approaches on offshore investment in the Gulf of Mexico. In addition, major new discoveries in Alaska have confirmed the quality of the resource base,” he said.
“If shale oil in the Permian [basin] is the superstar of the team, these other regional opportunities are key supporting players,” Birol said.
He said, “I mentioned that the US is set to become the world’s No. 1 oil producer, but Saudi Arabia is expected to remain its No. 1 oil exporter. Strategic stocks in the US and other countries will remain critical.”
US gas producers also are continuing to break records, he said. Production in 2018 increased by 12%, adding almost 10 bcfd, which Birol termed “the highest recorded production increase in absolute terms by any country, ever.” US LNG exports already have begun to play a bigger role in expanding global supplies, improving security, and making markets more efficient, he said.
“Whether it is increasing energy security and diversity in Poland or compensating for the disruption of Turkmen supplies in China, American LNG could step into the gap,” Birol said.
“We think a further wave is coming. Over the period to 2040, our projections suggest that North America could account for one third of the increase in global LNG trade. While the pacific coast of Canada is also attracting investment, a large majority will be in US,” he told the committee. “Along with Australia and Qatar, we expect US LNG to play a growing role in meeting market demand in Europe, India, Japan, China and elsewhere in Asia.”
The primary US constraint
US pipeline capacity is the biggest apparent potential constraint to higher oil and gas production and exports, he warned. “In particular, the northeastern US needs more robust gas pipeline infrastructure to maintain secure supplies. In addition, more progress needs to be made in reducing methane leaks—a major concern for efforts to address climate change,” Birol said.
One of the committee’s newest members also mentioned that more US pipelines clearly are needed. Martha McSally (R-Ariz.) said, “You said in your testimony that the US Northeast needs more pipeline capacity to get the natural gas it needs. There seems to be some activism there that’s leading to bad policy decisions.”
Another committee member, John Hoeven (R-ND), said, “We’re in a situation where we’re producing more and more gas, but our challenge is getting it to market. It’s not only a good economic opportunity for states like mine, where the gas that’s produced is associated with our crude oil production, but also a good geopolitical tool for our country. It’s in our country’s economic and security interests.”
Birol replied, “Many countries would like to have your problem because they are so gas-hungry. The amount of gas Asia needs is huge, and US LNG could help substantially. I think more investors need to be convinced that building pipelines to US export terminals would be a money-making proposition.”
Committee Chair Lisa Murkowski (R-Alas.) suggested that increasing US LNG exports will be important because of other suppliers’ plans. Currently in the Yamal Peninsula, Russia is working to ramp up production, Murkowski said, “but it’s not building pipelines to other countries.” She said, “It’s increasing its tanker fleet so it can increase LNG sales to Japan and other parts of Asia.”
She added, “Right now, in Alaska, we’re working to build a pipeline to move gas from the North Slope to a terminal where it would be liquefied and exported to Asian customers.”
A huge US opportunity
Birol said later in the hearing that he sees a huge opportunity for the US to have a major LNG market share in Asia because so many countries are trying to replace coal-fired power plants. “China built 13 new LNG import terminals in the last 10 years. India, [South] Korea, and other Southeast Asian countries also are increasing their LNG import capacity. I see great opportunities for US LNG to enter these markets and help make global gas markets faster. LNG gas trade is growing three times faster than pipeline gas trade,” he observed.
Another new member of the committee, Catherine Cortez Masto (D-Nev.), said that she noticed IEA’s latest world energy outlook included a section on water requirements for the first time. She asked Birol how IEA is assessing water availability questions.
“We need water to develop both shale gas and biofuels. We need water to cool down power plant chimneys,” he answered. “Water has come to energy for the first time because energy will be used more to desalinate water and make it more drinkable and useable. Its availability will be a problem for many countries.”
When Bill Cassidy (R-La.) asked what further potential IEA sees for the US in the Gulf of Mexico, Birol responded that this will depend largely on future production economics and market prices. “Either the cost needs to go down a bit more or the prices stay at higher levels before we get more deepwater offshore production,” he said.
“It now is cheaper and easier to produce US oil compared to 5 years ago. We expect production to be profitable in most parts of the US,” Birol said. “The challenge will be to bring what’s produced to the international markets—specifically increasing pipeline capacity. There are a lot of efforts there, but also a lot of opposition. Other than that, we don’t see substantial problems for the US.”