IEA PREDICTS 1990S COULD BE THE DECADE OF NATURAL GAS

The 1990s could be the decade of natural gas, the International Energy Agency says.

In a report on gas outlook and policies pursued by members of the Organization for Economic Cooperation and Development, IEA said the expected increase in gas supply and demand in OECD countries will bring a number of advantages.

As well as increasing security of supply, increased use of gas will diversify energy for power generation, industry, residential use, and transportation. It also will have environmental advantages by reducing sulfur dioxide and other emissions.

DEMAND BREAKOUT

IEA predicts gas demand will continue to grow into the next century.

In OECD Europe, it could reach 15.89-16.95 tcf in 2010, up from 9.81 tcf in 1990, including eastern Germany. In eastern Europe, gas demand is expected to double before 2010 with growth in all sectors. And gas demand in all of Europe could reach 20.13-22.95 tcf in 2010.

Total North American gas demand could reach 24.7-25.6 tcf in 2000 and 25.07-29.13 tcf in 2010 from 20.6 tcf in 1990.

In OECD Pacific, Japan's latest target for gas supply is 2.5 tcf in 2000 and 2.75 tcf in 2010. Most of the supply will be imports of liquefied natural gas, forecast to rise to 2.43 tcf in 2000 and 2.64 tcf in 2010 from 1.59 tcf in 1989.

The driving force for gas growth is power generation, IEA said. In OECD Europe, gas used in power generation and cogeneration will more than double during 1989-2000 to 2.86 tcf/year from 1.3 tcf/year.

In North America, gas demand for electricity also will more than double during 1989-2005 to 5.65 tcf/year from 2.82 tcf/year with nonutility generation providing a major part of the increase.

In Japan, power generation will increase, but its range will depend on whether expansion of the nuclear program is delayed. In Australia, gas in power generation might be an area of potential demand.

The main uncertainties surrounding future gas use for power generation stem mainly from gas prices, choice of discount rate, the balance of supply and demand in a situation with uncertain growth in electrical power demand, and future costs of environmental controls for gas and competing fuels.

The analysis suggests there is no need for an IEA policy limiting gas use for power generation.

RESERVES PICTURE

OECD members have a gas reserve:production ratio of 18 years, while estimates of additional resources are less precise.

But the location of reserves and estimates of production and transportation costs mean that sources of more supplies by pipeline from non-OECD countries to OECD Europe are limited to the U.S.S.R., Algeria, and perhaps Iran.

In North America and the Pacific, imports of major volumes from non-OECD countries by pipeline seem unlikely with the next two decades.

Looking at gas prices, the report says in North America, where short term contracts are the general rule, some revival of long term contracts is likely, and a new balance between spot markets and long term markets will occur.

In the short term, U.S. oil and gas prices might move independently because there are substitution possibilities between oil and gas in production and prices.

The report foresees no general long term security problems in the OECD area if adequate investments in storage are made and supply sources are sufficiently diversified.