Gas glut threatens climate battle-IEA

Thu Sep 13, 2012 6:30am EDT

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* Indebted governments seen likely to switch to gas

* IEA says new supplies will pressure gas prices lower

By Emma Farge

BERNE, Sept 13 (Reuters) - A new "golden age of gas" could derail global efforts to fight climate change as indebted governments mull a switch to the cheaper fuel, the International Energy Agency's chief economist said on Thursday.

Government subsidies designed to promote renewable energy currently amount to around $70 billion globally, he said.

But governments may be tempted to drop them as new shale gas and export facilities of liquefied natural gas (LNG) in east Africa and Australia pressure prices lower.

"Governments are feeling more and more uncomfortable to put m oney in renewables especially in the days of austerity, and some governments are cutting their support," Fatih Birol from the West's energy watchdog said at an energy conference in Berne, Switzerland.

"The availability of cheap or lower gas prices are putting additional pressure on renewable energies," he added.

Currently, natural gas prices of many exporters such as Russia, Norway and Qatar are high because they are sold under long-term contracts that are linked to oil, but suppliers are coming under increasing pressure by customers to reduce prices or allow more flexible pricing based on movements in the freely traded spot gas markets.

But Birol said that new supplies will undermine their ability to charge high prices in the long term.

In North America, a boom in unconventional shale gas exploration has led to sharp drops in domestic natural gas prices and the U.S. is expected to begin exporting LNG by 2015, putting pressure on global gas prices and established pipeline suppliers such as Russia's Gazprom and Norway's Statoil.

"You will see more and more, even in Europe, gas available outside of major current gas exporters which can put downward pressure on prices and give more flexibility on importers to negotiate long-term contracts," he later told Reuters.

Other analysts, however, say that shale gas exploration in Europe will not be big enough to break the dominance of established pipeline suppliers, and that the development of renewables will therefore remain important in order to meet energy demand and Europe's emmissions reduction targets.

Birol said that any reduction in investment in renewable energy would increase the risk of an increase in global temperatures by 6 degree Celsius this century, describing the current trend as "catastrophic".

"If there are no urgent and bold policies put in place the door to a 2 degrees trajectory, the door to a normal life for us and for our children, will be closed and will be closed forever," he said.

The IEA has already said that global emissions hit a record in 2011, and that carbon emissions from countries switching from nuclear to other conventional power generation technologies such as gas or coal are likely to rise

"You are wrong if you believe all this nuclear will be 100 percent replaced by renewable energy," he told the conference. (Additional reporting by Henning Gloystein in London, editing by William Hardy)

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