Nov. 10 (Bloomberg) -- There may be an “acute glut” of natural gas in the next few years because of rising production of so-called unconventional fuel in the U.S. and Canada, according to the International Energy Agency.

Global unconventional gas output will rise to 629 billion cubic meters in 2030 from 367 billion cubic meters in 2007, or to 15 percent of worldwide supply from 12 percent, the Paris- based adviser to 28 countries said in its annual World Energy Outlook. Gas supply capacity is set to outpace annual demand growth of 2.5 percent between 2010 and 2015, the IEA said.

“The looming gas glut could have far-reaching consequences for the structure of gas markets and for the way gas is priced in Europe and Asia-Pacific,” the IEA said in the report today.

Companies such as Chesapeake Energy Corp. and Statoil ASA are investing in unconventional sources for gas including shale rock and coal seams. Shale gas is locked in non-porous rock that made the reserves inaccessible until producers developed new drilling techniques in the 1990s.

U.S. natural gas prices in September fell to $2.409 per million British thermal units on the New York Mercantile Exchange, the lowest in more than seven years, as demand from chemical plants and power producers slumped.

Boosting U.S. Output

Relatively low North American prices are expected to discourage imports of liquefied natural gas, the IEA said. Unconventional sources can boost the region’s production at a wellhead cost of between $3 a million Btus and $5 a million Btus for the next several decades, the IEA said.

Unconventional sources, including coal-bed methane and so- called tight gas, will account for almost 60 percent of U.S. production in 2030, from more than 50 percent in 2008, according to the report. Unconventional gas constitutes about 45 percent of estimated global recoverable reserves of 850 trillion cubic meters, according to the IEA. Proven gas reserves were 180 trillion cubic meters at the end of last year, the report said.

Coal-bed methane originates in coal seams and is drained from surface boreholes before mining starts. Tight gas is methane locked in impermeable sandstone rock, which prevents the gas from flowing to well.

The IEA’s outlook for unconventional gas outside North America is “highly uncertain,” the adviser said. There are “major potential obstacles” to the development of such reserves in China, India, Australia and Europe, it said.

Environmental Concerns

European unconventional gas production is forecast to “take off” in the second half of the period to 2030 but is likely to remain a relatively small part of overall output, the IEA said.

Environmental concerns about developing the reserves, the need for new transport lines, the large volumes of water needed to complete wells and restricted physical access to certain deposits may impede global production, it said.

Global gas demand will rise to 4.3 trillion cubic meters in 2030 from 2 trillion cubic meters in 2007, according to the IEA.

Production costs for the 55 trillion cubic meters conventional gas resources that are easily accessible vary between 50 cents a million Btus and $6 a million Btus, the IEA said. Producing the 380 trillion cubic meters of accessible unconventional gas globally will cost between $2.7 a million Btus and $9 a million Btus, the IEA said.

Pipeline Capacity

The agency forecast a “big increase” in spare inter- regional gas transport capacity. Under-utilization of pipelines between regions and LNG production capacity combined will rise to about 200 billion cubic meters in 2012-2015 from 60 billion in 2007.

LNG producers are more likely to offer gas supplies into spot markets at whatever price is needed to find buyers. This move will lead to the “backing out” of gas that would otherwise be traded via pipelines.

There’s likely to be a growing price differences between international markets, according to the IEA.

“Gas prices will tend to rise in Europe and Asia-Pacific because of the predominance of oil-indexation in their long-term supply contracts, diverging from those in North America,” according to the report.

Lower spot prices may pressure suppliers to change oil- indexed gas sales contracts, the IEA said.

To contact the reporters on this story: Rachel Graham in London rgraham13@bloomberg.netBen Farey in London at bfarey@bloomberg.net

Last Updated: November 10, 2009 06:43 EST