Natural gas’ role in the energy transition.
To enable the net zero emissions goal by 2050, investment in clean energy technologies and renewables continues to grow with global investment in low-energy transition increasing 17 percent last year, reaching $1.77 trillion (c £1.4 trillion)1. Yet the capacity of renewables hasn’t progressed enough to satisfy energy demand.
While the world is transitioning away from fossil fuels, it’s impracticable to stop using this source of energy overnight. Amidst a backdrop of political instability and concerns over energy security, it is necessary for the conventional industry to decarbonize quickly to help bridge the gap to meet its net zero ambitions.
According to the IEA, natural gas is the cleanest burning fossil fuel. It is also well suited to energy intensive industries that need a flexible fuel supply to overcome the issues caused by the intermittency of renewables. As such, natural gas has a key role to play on the journey to a zero emissions future.
However, this is not to say there aren’t doubts over its role in the future energy mix given it is a fossil fuel. Lenders and investors are approaching the issues of climate change and energy transition with both concern and practicality. After all, the industry is looking at ways to reduce or offset its carbon footprint across the natural gas value chain and are now factoring in costs related to decarbonization and sustainability requirements.
Recent news that the US has announced a pause on approvals for new LNG export licenses has raised some concern about their ability to meet demand. North American gas producers are currently the world’s largest LNG exporter, accounting for approximately 80 percent of additional LNG supply last year alone. That said, geopolitical uncertainties, such as the ongoing conflict in Russia, are typically one of the biggest risk factors in energy supply. It means where one country may pause investment, others continue to invest producing more facilities and securing additional European and Asian contracts. While it’s too early to say for certain what the long-term impact of this will be, it could reaccentuate Middle Eastern natural gas market dominance or increase investment into Africa or Asia. Qatar, for example, is planning a 13 percent increase in its annual capacity on top of previous expansions, and there are others who do not subscribe to the IEA’s view of peak gas demand being at the end of the decade.
Notwithstanding this, the majority of research indicates that the demand for gas is forecast to grow. Shell has just released figures citing demand is expected to rise by over 50 percent by 2040. The backbone of this is expected to be Asian countries which are set to use more LNG to support economic enrichment, while China’s move to swap coal in favor of LNG is anticipated to gather increased momentum. The key focus, however, remains that whatever the demand profile, natural gas production must focus on ways to reduce or offset carbon footprint across the entire value chain. Going forward, decarbonized natural gas will be valued higher than natural gas produced in a CO2 intensive way.
In Europe, a key objective of the EU’s energy union strategy is ensuring all countries have access to LNG markets aiding energy security as LNG doesn’t have to rely on existing pipeline infrastructure. Additionally, legislation has come in to improve the transparency of the LNG end-to-end value chain from extraction, processing, shipping and offloading. To strengthen energy security further, international co-operation is crucial to assess and implement options along the value chain, and new regasification facilities should help improve security of energy supplies even more.
For gas to truly thrive in the transition to lower carbon energy, the full industry value chain globally needs to be assessed from upstream gas production and pipeline transportation, through to liquefaction, ocean transport, regasification and downstream use. Companies along the value chain have their part to play too. They can reduce GHG emissions by using biogas for feedstock, reducing emissions from upstream, pipeline, and liquefaction facilities, using renewable energy to power their liquefaction facilities, and using carbon capture, utilization, and storage (CCUS) technologies.
By Andy Aston
Andy Aston is Managing Director, Natural Resources at Turner & Townsend. Turner & Townsend is a global professional services company with over 10,000 people in 48 countries. Collaborating with our clients across real estate, infrastructure, and natural resources sectors, we specialise in major programmes, programme management, cost and commercial management, net-zero, and digital solutions.