Gas is the fuel to drive a clean energy world

Fossil fuels will remain dominant over the next few decades but the move to low carbon energy is inevitable and oil will probably not be the force it is now.

The global energy sector has been facing unprecedented change in the past two years with further challenges ahead of us in both the oil and gas industries. Global oil demand is expected to return to relatively robust growth rates with global consumption reaching just short of 100 million barrels per day (bpd) by 2020 and 104 million bpd by about 2025.

However, on the supply side, non-OPEC production is seen to peak at about 48 million bpd in 2013. If global demand continues to increase by between 1 million bpd and 1.5 million bpd annually, total OPEC production will probably need to increase from about 28.5 million bpd last year to about 35 million bpd by 2020 and possibly 38 million bpd in 2025. At the same time, however, OPEC faces declining rates of production of about 1.5 million bpd (more than half of which is in Iran and Saudi Arabia). So, OPEC must add 7.5 million bpd every five years just to stay in the same place, which still needs an additional 17 million bpd to find from somewhere.

To keep a comfortable cushion of spare capacity beyond 2015 requires a continued programme of significant investment by core Middle Eastern members of the organisation. If this is not forthcoming, we will see tight markets and higher prices going forward. In the short term, we have seen a worldwide economic crisis that has forced a sharp drop in demand and a lowering of energy prices. In the gas industry, this has resulted in a global oversupply of gas with producers struggling to find demand for their volumes and buyers struggling to off-take contracted supply. If we look at the situation in Europe, we see a dramatic decoupling of oil indexation and gas prices as a result of recovering oil prices and surplus gas in the market.

In addition to this market situation, financing, which had earlier been no problem for energy projects and especially upstream projects, has become a major issue. The capital restrictions in the post credit crunch world may have a significant impact on investments in energy projects in the next decade. Accelerating energy efficiency, a result of technology improvements sought by governments across the world, will temper demand and deter producers from investing in new production capacity. This could lead to future supply shortages and have a negative effect on security of supply.

The accident in the Gulf of Mexico highlights that politics can never be separate from the energy industry. The sinking of BP's Deepwater Horizon and the subsequent oil spill may result in the restriction of future offshore drilling in the US and possibly in other regions. This may cancel or defer new exploration projects and may also accelerate investment in alternative fuels and energy efficiency.

In my view, the transition to a lower carbon energy world is only realistic with the use of natural gas. It is a global commodity, abundantly available, the cleanest fossil fuel and an ideal complement to renewable energy. However, it will be interesting to monitor the discussions that will take place on carbon taxes. Is it better to have a revenue neutral carbon tax as opposed to developing a global carbon emissions market?

Although, even in a lower carbon energy world, I am convinced that fossil fuels will remain the predominant energy source over the next decades, the issues I have raised could have a significant impact on the global energy map and therefore on the position of OPEC countries. Domestic oil and gas demand soars with population growth and industrialisation. This is becoming very apparent here in the Gulf as a result of the extraordinary development that has taken place in the past five to seven years.

Energy-exporting countries now need to service local demand and this could lead to a decline of exports in the coming decades. Without continuing exploration for new oil and gas resources on a sustainable level, there could be significant energy shortages. This may have a negative impact on the economy of OPEC countries - missing revenues from energy exports - and, of course, for the global economy.

To mitigate such a scenario, one solution could be for international and national oil companies to find a new partnership balance in order to meet the demand forecasts over the coming decades. Although some critics believe that OPEC will become increasingly irrelevant as the China-India energy demand soars making OPEC quotas redundant, I have no doubt that OPEC will and must play a major role in the process to cover the future world energy demand and that it will even increase its relevance in the future.

I see a paradigm shift from oil to gas production in a number of countries that will result in a challenge for OPEC but also an opportunity, and I think it will be one of the most interesting topics in the global energy business in the future. Dr Jochen Weise is a member of the E.ON Ruhrgas board of management and responsible for the company's gas supply activities