08-06-06 Timely and plentiful investment in natural gas projects will be vital to avoid the potential for a shortfall of gas in meeting projected gas demand by 2010, IEA Executive Director Claude Mandil said. The IEA published a 2006 “Natural Gas Market Review” in which "one of the key messages we want to get across is investment," Mandil said.
"We're concerned investment may be too low worldwide," added Ian Cronshaw, head of the IEA Energy Diversification Division.

While investment out until 2010 focuses on LNG projects -- a forecast of around $ 180 bn, or more than a third of total gas investment until 2010 -- the fuel is expected to account for only 20 % of total gas consumption, the IEA said. The remaining 80 % will be supplies through pipelines.
In contrast, forecasts for global gas exploration and development investment will be around $ 175 bn, while transmission and storage investment comes in at around $ 150 bn.

Mandil said that investment in pipeline gas projects "is weak" and emphasised that LNG couldn't be viewed as a "magic bullet" despite the high levels of investment in the sector. Representing 20 % of total gas demand by 2010 is "certainly not the bulk... what is important is diversity," he added. "Diversification is very important to increase energy security."
"To service LNG demand... every planned investment has to proceed on time and on budget. We have serious concerns" whether this will be the case, Cronshaw said. "Gas consumption is increasing more quickly than any other fossil fuel consumption; in particular liquefied natural gas consumption is growing much faster than average gas consumption," said Cronshaw.

He pinned the increase in gas demand on a growing global requirement for electricity production which has increased 1.1 % a year since 2004, the IEA report said.
While the impact of high global gas prices is thought likely in some quarters to drive down demand, "over the next four or five years, we don't see that strongly," said Cronshaw. Gas is expected to remain the primary power generation fuel, with coal, nuclear and renewables trailing some distance behind.

Addressing the investment lag versus demand levels requires speedy market reform and pro-investment policies, which Cronshaw said "are beginning to be implemented."
But market reform doesn't mean hurrying to liberalize markets, Mandil said.
"We fully recognize that the process of liberalization is long and difficult." And in something of a reassurance to the sector, Mandil ceded that the identified investment lag is "not specific to gas", Mandil said.

"We've repeatedly said that investment in the energy sector is key and is lagging," he added. "It is true in the oil market, and as a result we face a lack of capacity which brings prices so high. Investment in gas is a concern but no more than electricity or oil," Mandil said.
The IEA expects to publish the “Natural Gas Market Review” annually.