Released November 08, 2022 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--An estimated 35,000 people are expected to flock to the Egyptian resort town of Sharm el-Sheikh this week and next for the United Nations annual conference on climate change. This annual climate pilgrimage comes amid reports from the U.N. that few nations are fulfilling their commitments to reduce emissions of carbon dioxide (CO2) and other gases that worsen global climate change.
Against this backdrop, reading the World Energy Outlook 2022, produced annually by the International Energy Agency (IEA) (Paris, France), spurs two conclusions. First, in the absence of an all-out crisis as we are witnessing today in Europe, governments face a vast challenge trying to control markets in ways that create short-term consumer discomfort. Second, the IEA's scenarios may be of limited utility given that most nations are not even meeting their stated commitments, around which the agency built its most basic "business as usual" scenario.
Here's a recap of the scenarios in the World Energy Outlook 2022 report:
Before the Industrial Revolution, CO2 concentrations in the atmosphere were about 280 parts per million. This year's measurement is 419 parts per million, according to the National Oceanic and Atmospheric Administration (NOAA) (Washington, D.C.), a number the U.S. agency said has not been reached in more than 4 million years.
A late-October report from the U.N. showed just 26 of the 193 countries have met the global warming commitments they made at last year's U.N. climate summit in Glasgow, Scotland. This suggests a future marked by more intense flooding, wildfires, drought, heat waves and species extinction, according to the U.N. climate change report released October 26.
This under-performance adds an air of resignation and inevitability when reading this year's WEO-22, which clocks in at 524 pages. If the world's largest emitters aren't coming close to meeting their commitments, does it really matter what small island nations are doing?
For more coverage of this annual report, which was released October 27, see October 28, 2022, article - IEA Sees Potential Shift Toward Lower-Carbon World Amid Energy Crisis; October 31, 2022, article - IEA Details Investments in Electric Sector Needed to Fight Climate Change; and November 7, 2022, article - Oil Industry Urged to Up Investment in Conventional and Unconventional Fuels.
Nonetheless, IEA devotes a chapter of WEO-22 to the global natural gas and liquefied natural gas (LNG) trade. Gas emerges as a double-edged sword in a climate-change context: It emits less CO2 than coal when combusted to generate electric power, but the previous decade's embrace of gas-fired electric generating capacity means those emissions will be locked in for decades.
Still, no analysis of worldwide energy trends would be complete without assessing natural gas. Global gas demand in 2021 totaled about 4,248 billion cubic meters (bcm) in 2021, a 5% increase over 2020 demand, but roughly double its annual growth rate from the preceding decade, the IEA report said.
Under its STEPS case, global demand rises to 4,456 bcm in 2030 and 4,661 bcm in 2050. But more aggressive government action could lower global demand to 3,568 bcm in 2050 in the APS case and 2,681 bcm in 2050 in the NZE cases, the agency projected. By 2050, gas demand would fall 23% in the APS case and 42% in the most-aggressive NZE case.
Reduced demand, typically the result of tighter government regulation and higher equipment efficiency and building standards, would trigger a virtuous cycle that would lower prices as well as CO2 emissions. Prices would fall most dramatically in Europe and Japan, but gas prices also would fall in the U.S., the agency said.
Click on the image at right to see the IEA's projection of future natural gas prices in three regions under its three scenarios.
Declining gas prices in the U.S. would improve the competitiveness of its LNG exports, the WEO-2022 report projected: "Declines in domestic demand in the United States open opportunities for higher LNG exports; in both the STEPS and APS, the United States soon overtakes Russia to become the world's largest natural gas exporter."
The report noted that projected global gas use in 2050 in this year's STEPS case is 750 bcm below last year's STEPS case. "Half of this downward revision comes from more rapid moves away from unabated natural gas consumption in advanced economies," it said. "The United States alone accounted for one‐third of the total downward revision: its recent Inflation Reduction Act is set to speed up the deployment of renewables in the power sector and to provide stronger support for efficiency and heat pumps in buildings. The other major downward revision comes from price‐sensitive emerging market and developing economies, where high natural gas prices mean that prospects for coal‐to‐gas switching are now more muted."
Turning to LNG, the report said, "Rising natural gas demand in parts of Asia, alongside European Union efforts to import non‐Russian gas, underpin LNG demand growth in all scenarios until the mid‐2020s, but there are sharp divergences thereafter."
In the STEPS case, the IEA projected an additional 240 bcm per year of export capacity would be needed by 2050, over and above projects already under construction. In the APS case, only projects currently under construction are required. In the NZE Scenario, a sharp decrease in natural gas demand globally means that even these projects are in many cases no longer necessary.
Click on the image at right to see the IEA's projection of global LNG export terminal capacity under three scenarios to 2050.
The sharp divergence in need for future LNG export capacity "highlights a key dilemma for investors considering large, capital‐intensive LNG projects," the WEO-2022 report said. "How to reconcile strong near‐term demand growth with uncertain, but possibly declining, longer-term demand."
Worldwide investment in natural gas extraction and LNG transportation averaged about $225 billion annually over the 2016-2021 period, the IEA calculated. But it found sharply divergent needs for future annual investment under its three scenarios to 2050. For the remainder of this decade, the STEPS case calls for annual global investment of about $275 billion, while the APS and NZE cases would require about $250 billion and $210 billion annually, respectively. During the balance of the 2020s, the IEA envisioned an investment shift from gas to hydrogen.
Farther out, the divergence in annual worldwide investment widens markedly, with annual investments in gas and hydrogen being mirror opposites for the 2031-2050 period. If the world does not pivot to hydrogen, annual investment needs in gas average about $250 billion, with relatively small investments in hydrogen. But a more fulsome embrace of hydrogen by the world's governments and energy companies sees investment soar in the APS and STEPS cases.
Click on the image at right to see annual investment projections for natural gas and hydrogen under the IEA's three scenarios to 2050.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).
Against this backdrop, reading the World Energy Outlook 2022, produced annually by the International Energy Agency (IEA) (Paris, France), spurs two conclusions. First, in the absence of an all-out crisis as we are witnessing today in Europe, governments face a vast challenge trying to control markets in ways that create short-term consumer discomfort. Second, the IEA's scenarios may be of limited utility given that most nations are not even meeting their stated commitments, around which the agency built its most basic "business as usual" scenario.
Here's a recap of the scenarios in the World Energy Outlook 2022 report:
- Stated Policies Scenario (STEPS), which maps out a trajectory that reflects current policy settings. This amounts to a "business as usual" approach. Most countries are not even meeting their stated emissions-reductions commitments contained in this scenario.
- Announced Pledges Scenario (APS), which assumes that all long‐term emissions and energy access targets, including net-zero commitments, will be met on time and in full, even where policies are not yet in place to deliver them.
- Net-Zero Emissions by 2050 Scenario (NZE), which sets out an aggressive pathway for the global energy sector to achieve net-zero CO2 emissions by 2050.
Before the Industrial Revolution, CO2 concentrations in the atmosphere were about 280 parts per million. This year's measurement is 419 parts per million, according to the National Oceanic and Atmospheric Administration (NOAA) (Washington, D.C.), a number the U.S. agency said has not been reached in more than 4 million years.
A late-October report from the U.N. showed just 26 of the 193 countries have met the global warming commitments they made at last year's U.N. climate summit in Glasgow, Scotland. This suggests a future marked by more intense flooding, wildfires, drought, heat waves and species extinction, according to the U.N. climate change report released October 26.
This under-performance adds an air of resignation and inevitability when reading this year's WEO-22, which clocks in at 524 pages. If the world's largest emitters aren't coming close to meeting their commitments, does it really matter what small island nations are doing?
For more coverage of this annual report, which was released October 27, see October 28, 2022, article - IEA Sees Potential Shift Toward Lower-Carbon World Amid Energy Crisis; October 31, 2022, article - IEA Details Investments in Electric Sector Needed to Fight Climate Change; and November 7, 2022, article - Oil Industry Urged to Up Investment in Conventional and Unconventional Fuels.
Nonetheless, IEA devotes a chapter of WEO-22 to the global natural gas and liquefied natural gas (LNG) trade. Gas emerges as a double-edged sword in a climate-change context: It emits less CO2 than coal when combusted to generate electric power, but the previous decade's embrace of gas-fired electric generating capacity means those emissions will be locked in for decades.
Still, no analysis of worldwide energy trends would be complete without assessing natural gas. Global gas demand in 2021 totaled about 4,248 billion cubic meters (bcm) in 2021, a 5% increase over 2020 demand, but roughly double its annual growth rate from the preceding decade, the IEA report said.
Under its STEPS case, global demand rises to 4,456 bcm in 2030 and 4,661 bcm in 2050. But more aggressive government action could lower global demand to 3,568 bcm in 2050 in the APS case and 2,681 bcm in 2050 in the NZE cases, the agency projected. By 2050, gas demand would fall 23% in the APS case and 42% in the most-aggressive NZE case.
Reduced demand, typically the result of tighter government regulation and higher equipment efficiency and building standards, would trigger a virtuous cycle that would lower prices as well as CO2 emissions. Prices would fall most dramatically in Europe and Japan, but gas prices also would fall in the U.S., the agency said.
Click on the image at right to see the IEA's projection of future natural gas prices in three regions under its three scenarios.Declining gas prices in the U.S. would improve the competitiveness of its LNG exports, the WEO-2022 report projected: "Declines in domestic demand in the United States open opportunities for higher LNG exports; in both the STEPS and APS, the United States soon overtakes Russia to become the world's largest natural gas exporter."
The report noted that projected global gas use in 2050 in this year's STEPS case is 750 bcm below last year's STEPS case. "Half of this downward revision comes from more rapid moves away from unabated natural gas consumption in advanced economies," it said. "The United States alone accounted for one‐third of the total downward revision: its recent Inflation Reduction Act is set to speed up the deployment of renewables in the power sector and to provide stronger support for efficiency and heat pumps in buildings. The other major downward revision comes from price‐sensitive emerging market and developing economies, where high natural gas prices mean that prospects for coal‐to‐gas switching are now more muted."
Turning to LNG, the report said, "Rising natural gas demand in parts of Asia, alongside European Union efforts to import non‐Russian gas, underpin LNG demand growth in all scenarios until the mid‐2020s, but there are sharp divergences thereafter."
In the STEPS case, the IEA projected an additional 240 bcm per year of export capacity would be needed by 2050, over and above projects already under construction. In the APS case, only projects currently under construction are required. In the NZE Scenario, a sharp decrease in natural gas demand globally means that even these projects are in many cases no longer necessary.
Click on the image at right to see the IEA's projection of global LNG export terminal capacity under three scenarios to 2050.The sharp divergence in need for future LNG export capacity "highlights a key dilemma for investors considering large, capital‐intensive LNG projects," the WEO-2022 report said. "How to reconcile strong near‐term demand growth with uncertain, but possibly declining, longer-term demand."
Worldwide investment in natural gas extraction and LNG transportation averaged about $225 billion annually over the 2016-2021 period, the IEA calculated. But it found sharply divergent needs for future annual investment under its three scenarios to 2050. For the remainder of this decade, the STEPS case calls for annual global investment of about $275 billion, while the APS and NZE cases would require about $250 billion and $210 billion annually, respectively. During the balance of the 2020s, the IEA envisioned an investment shift from gas to hydrogen.
Farther out, the divergence in annual worldwide investment widens markedly, with annual investments in gas and hydrogen being mirror opposites for the 2031-2050 period. If the world does not pivot to hydrogen, annual investment needs in gas average about $250 billion, with relatively small investments in hydrogen. But a more fulsome embrace of hydrogen by the world's governments and energy companies sees investment soar in the APS and STEPS cases.
Click on the image at right to see annual investment projections for natural gas and hydrogen under the IEA's three scenarios to 2050.Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).
