Energy Headlines

Speakers at this year’s Flame conference in Amsterdam were cautiously optimistic about the role of gas in Europe’s future energy mix, but expected any imports to be shipped from Africa rather than the United States.

Despite the fact that 90% of global shale developments are in North America, the International Energy Agency (IEA) said it remains sceptical about potential of US LNG and sees Africa as the more likely of the two to emerge as a supply partner for Europe.

"We believe Africa will play a bigger role in exports to Europe than North America," Laszlo Varró, head of the gas, coal and power market division at the IEA, told delegates at the conference on Wednesday.

"The US power system still remains dependent on coal. If coal [is phased out and] not replaced, most [of the country’s] shale gas will be needed for domestic consumption, which will constrain exports," Varró said.

The administration of US President Barack Obama recently announced a number of environmental policies to reduce carbon emissions from power plants and methane emissions from the energy industry, which are expected to hit American coal plants the hardest.

Meanwhile, a wealth of exploration success offshore East Africa has put the region firmly on the map as a potential LNG heavyweight.

In the past five years alone, 30% of the world’s new oil and gas discoveries were made in Africa. Varró said recent discoveries in Mozambique and Tanzania were good news for gas and could change global markets.

Though bullish on the prospects of African exports, Varró pointed to a rapid rise in domestic demand as a potential stumbling block.

Africa’s fast-growing population means the continent’s low electrification rate of less than 50% is expected to drop in the coming years, putting politicians under increasing pressure to invest in domestic power markets.

"It will be a political priority for Africa to not just export the gas and leave the population in the Middle Ages," Varró said. Concerning other potential exporters, the IEA does not expect to see a rise in volumes from the Middle East and remains doubtful about the future of Russian LNG projects.

"[Western] sanctions [on Russia] will put LNG projects on hold as the projects depend on US engineering companies. But while we are pessimistic about Russian LNG projects, we are optimistic about Russian pipeline projects to China," Varró said.

However, China’s demand remains difficult to predict given that the country’s shale developments remain the single largest uncertainty in the global energy and gas market, according to the IEA. China’s shale gas producers are facing numerous obstacles, ranging from complex geology to high production costs. Population density is also a problem – the population density of Sichuan, a promising shale region, is five times greater than Pennsylvania in the US.

Shale success closer to home looks even less likely, noted Varró. "I have to stretch my imagination to be optimistic about shale gas developments in the EU," he said.