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China and the Middle East, spurred by lower prices and ample supply, will drive global natural gas demand growth in the next 25 years as consumption in Europe fails to recover to peak levels seen in 2010, according to the International Energy Agency.

Both regions will become larger gas users than Europe by 2035, the Paris-based IEA said in its World Energy Outlook 2015. Global demand for gas, a cleaner-burning fuel for power generation than coal, will rise 1.4 percent a year to 5.16 trillion cubic meters (182 trillion cubic feet) in 2040, making it the fastest-growing fossil fuel. The agency forecast 1.6 percent annual growth to 5.38 trillion cubic meters in last year’s World Energy Outlook.

“With gas prices already low in North America, and dragged lower elsewhere by ample supply and contractual linkages to oil prices, there is plenty of competitively priced gas seeking buyers in the early part of the Outlook,” the IEA said.

Gas will account for 24 percent of power generation by 2040, up from 21 percent in 2013, as the share of dirtier coal falls to 30 percent from 41 percent. The fuel is also being used to spare use of oil and back up renewable energy generation.

Price Slump

U.S. futures, used to price contracts for the first liquefied natural gas exports from the shale boom, declined 46 percent over the past year. Exports from the Sabine Pass terminal are scheduled to start early next year, adding to expanding output of the super-chilled fuel from Australia. Brent oil declined 43 percent in the past year, dragging down oil-linked gas contracts.

“These price developments seem set to boost natural gas demand in major importing regions, reinforcing our view that natural gas is a fuel well placed to expand its role in the global energy mix,” the IEA said.

Gas demand in the European members of the Organization for Economic Cooperation and Development will remain little changed at 528 billion cubic meters in 2040, rising 0.1 percent a year from a forecast for 0.7 percent annual growth in last year’s report. China’s consumption is expected to rise 4.7 percent annually, the fastest growth among all regions, to 592 billion cubic meters, the report shows. The Middle East will expand gas use by 2.1 percent a year to 738 billion cubic meters.

Coal Demand

Within the OECD, North America is the only region with significant demand growth, the IEA said. In the U.S., the largest consuming country, gas will displace coal as the largest source of power generation by the mid-2020s. By the early 2030s, it will overtake oil as the most used fuel in the U.S. primary energy mix, the report says.

Global coal demand growth is set to slow to 0.4 percent annually, the report shows. Energy efficiency, competition from renewables, and coal in power generation in some countries may constrain long-term expansion of gas, the IEA said.

Gas use could also be curbed if delayed investments amid lower commodity prices tightens the markets in the 2020s, the report said.

“Emissions of methane, a powerful greenhouse gas, along the supply chain will dent the environmental credentials of gas if there is no concerted policy action to tackle these leaks,” the IEA said.

Unconventional Gas

While unconventional gas will make up about 60 percent of supply growth, the spread of projects such as shale-gas plays outside North America will be “more gradual and uneven,” the report said. Global production of shale gas, coalbed methane and tight gas is set to rise to about 1.7 trillion cubic meters in 2040 from 630 billion cubic meters in 2013.

China aims to boost unconventional gas production to more than 250 billion cubic meters by 2040, the report said. Such growth is less certain amid challenges such as geology, limited water availability, population density in some areas, and regulatory issues related to pricing, the IEA said.

For Related News and Information:

Top Gas News: TGAS

To contact the reporter on this story:

Anna Shiryaevskaya in London at +44-20-3525-8247 or

ashiryaevska@bloomberg.net

To contact the editors responsible for this story:

Lars Paulsson at +44-20-3525-2759 or

lpaulsson@bloomberg.net

(Updates with details on gas demand from second paragraph.)