Section One

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In last year’s WOO, the potential effect of shale gas on oil markets was assessed as
being rather limited. There is no doubt that a lower natural gas price per unit of
energy could be seen as an incentive to use more gas. However, in electricity generation,
oil’s share is low and has been falling in all regions, and this trend is expected
to continue. In the transportation sector, natural gas could be used either directly
in internal combustion engines as Compressed Natural Gas (CNG) – or even as
LNG for heavy trucks – and indirectly in electricity-powered cars. According to the
International Association for Natural Gas Vehicles, the global number of natural
gas vehicles reached 12.7 million units in 2010, mostly in Asia and Latin America.
However, this represents less than 1% of total commercial road vehicles. In the US,
there are only 112,000 natural gas vehicles. Higher vehicle costs, lower energy density
and a lack of refuelling stations prevent a more widespread use of natural gas in
transportation. Large upfront subsidies are needed to overcome such hurdles, even
if the CNG gas price premium remains high over a long period of time. Similarly,
the development of electric vehicles faces many obstacles, which are explained in
Box 2.1.
In terms of the main impact on oil markets, it is likely that this will be through
the use of horizontal drilling and hydraulic fracturing in shales that are in the gascondensate
or oil maturity window. This would bring additional liquids supply that
has the potential to be substantial. It is already happening today in the US. This is
covered in Chapter 3.
by 2035 it will have been overtaken, in the Reference Case, by coal use, which will
represent 29% of total energy, similar to today, while oil’s share falls from 34%
to 28%. Gas use will rise at faster rates than either coal or oil, both in percentage
terms and volumes, with its share rising from 23% to 25%.
The prospects for nuclear energy have clearly been affected by events at Japan’s
Fukushima nuclear power plant in March this year (Box 1.6). The Reference
Case reflects the immediate aftermath of the accident when nuclear power had to
be replaced by other fuels. Moreover, moving forward, it is assumed that future
prospects for nuclear power in Japan have been negatively affected. It has also led
a number of other countries to effectively rule out future nuclear build, such as
Germany, Switzerland and Italy (Box 1.6). It may also have implications elsewhere.
In the Reference Case, nuclear energy still expands at an average rate of 1.7% p.a.,
although its contribution has been revised down from earlier estimates. Biomass
use expands rapidly, and its contribution to total supply is approaching that of
nuclear by 2035, at around 6%. Renewable energy, other than hydro, rises the