Released May 19, 2023 | SUGAR LAND
en
Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--Rystad Energy's recent virtual conference, the "Energy Transition Marathon," addressed a number of transition topics. One of them was the question of whether natural gas, which burns cleaner than coal, diesel and many other fossil fuels, could be used to somewhat reduce greenhouse gas (GHG) emissions while cleaner energy sources are being developed. One expert believes it can. But to do so, it will require long-term investment, which may be a sticking point for investors wondering about the fuel's market longevity.
In a segment entitled, "Is Natural Gas the Bridge Over Troubled Water for the Energy Transition?" Rystad's Sindre Knutsson, senior vice president of gas market research, pointed out natural gas has been replacing coal for several years.
"Replacing coal in power generation is natural gas's main opportunity now," he said. "It has been happening in North America and in Europe for years, switching from coal to natural gas in the power mix." He added that Australia and Africa have joined in the changeover.
In the U.S., turning from coal to natural gas in the power generation sector has been encouraged by low gas prices, he said. Gas prices rose for a while during the early months of the Russian war with Ukraine, when Europe was concerned about replacing boycotted Russian gas. But warm winters in the U.S. and in Europe reduced gas usage, dropping its market price to very low levels in recent months.
For Europe, where most gas is imported, the greater driving force in the switching process has been the region's system of carbon taxation.
Knutsson noted that Asian markets have the greatest potential for growth in this area. "Because if you look at the Asian market's power mix in 2022, around 8,000 kWh (kilowatt hours) of electricity was produced from coal, which is around 55% of the overall power mix." He quoted figures showing that the region's coal-fired power generation facilities emit 6,000 gigatonnes of carbon dioxide (CO2) on an annual basis.
"For Asia, you don't have cheap gas, as they import energy and there are not any established carbon markets," he said. But, "There are plans to roll out carbon markets in India and Indonesia, and they already exist in China and Japan and South Korea. But the question is, are they developing quickly enough? If not, you would need (government) policies to switch away from coal to natural gas." This is important as a way to reach the lower degree of global warming scenarios, Knutsson indicated.
To achieve scenarios below 2 degrees Celsius (of warming by 2050), natural gas must have a significantly higher share than coal, he believes. Gas will be needed to bridge the gap of developing renewables to take over the leading market share. And "gas will continue to be needed after 2050," he said.
With the ultimate goal being to also pivot away from natural gas by 2050, Knutsson warned of what he called "the sticky coal trap." In that scenario, natural gas usage does drop precipitously by that year, but it is at least somewhat caused by the continued use of coal instead of renewables.
Investment in Supply and LNG
Gas must keep flowing for it to be used in the transition. Said Knutsson, "So you need significant investments to insure we have enough gas to allow us to replace coal globally." He added that 2,700 billion cubic meters (BCM) of CH4 (methane) will be needed by 2040 under the 1.9-degree scenario, and 2,400 BCM by 2050.
To get that natural gas to end users across the globe, there must be continued growth in liquefied natural gas (LNG) facilities, a trend that started after disruptions in Russian gas supplies to Europe in 2022. But those facilities have a long return on investment (ROI) payout, so LNG facility investors need long-term commitments from buyers before launching into that process. But buyers are reluctant to commit to any fossil fuel for the long term because they fear it will be phased out before the agreement's end, leaving them stuck buying something that no one needs.
So the irony is that the reluctance to sign a contract "could be another bottleneck in making progress toward climate goals," Knutsson said.
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) 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 over 200,000 current and future projects worth $17.8 Trillion (USD).
In a segment entitled, "Is Natural Gas the Bridge Over Troubled Water for the Energy Transition?" Rystad's Sindre Knutsson, senior vice president of gas market research, pointed out natural gas has been replacing coal for several years.
"Replacing coal in power generation is natural gas's main opportunity now," he said. "It has been happening in North America and in Europe for years, switching from coal to natural gas in the power mix." He added that Australia and Africa have joined in the changeover.
In the U.S., turning from coal to natural gas in the power generation sector has been encouraged by low gas prices, he said. Gas prices rose for a while during the early months of the Russian war with Ukraine, when Europe was concerned about replacing boycotted Russian gas. But warm winters in the U.S. and in Europe reduced gas usage, dropping its market price to very low levels in recent months.
For Europe, where most gas is imported, the greater driving force in the switching process has been the region's system of carbon taxation.
Knutsson noted that Asian markets have the greatest potential for growth in this area. "Because if you look at the Asian market's power mix in 2022, around 8,000 kWh (kilowatt hours) of electricity was produced from coal, which is around 55% of the overall power mix." He quoted figures showing that the region's coal-fired power generation facilities emit 6,000 gigatonnes of carbon dioxide (CO2) on an annual basis.
"For Asia, you don't have cheap gas, as they import energy and there are not any established carbon markets," he said. But, "There are plans to roll out carbon markets in India and Indonesia, and they already exist in China and Japan and South Korea. But the question is, are they developing quickly enough? If not, you would need (government) policies to switch away from coal to natural gas." This is important as a way to reach the lower degree of global warming scenarios, Knutsson indicated.
To achieve scenarios below 2 degrees Celsius (of warming by 2050), natural gas must have a significantly higher share than coal, he believes. Gas will be needed to bridge the gap of developing renewables to take over the leading market share. And "gas will continue to be needed after 2050," he said.
With the ultimate goal being to also pivot away from natural gas by 2050, Knutsson warned of what he called "the sticky coal trap." In that scenario, natural gas usage does drop precipitously by that year, but it is at least somewhat caused by the continued use of coal instead of renewables.
Investment in Supply and LNG
Gas must keep flowing for it to be used in the transition. Said Knutsson, "So you need significant investments to insure we have enough gas to allow us to replace coal globally." He added that 2,700 billion cubic meters (BCM) of CH4 (methane) will be needed by 2040 under the 1.9-degree scenario, and 2,400 BCM by 2050.
To get that natural gas to end users across the globe, there must be continued growth in liquefied natural gas (LNG) facilities, a trend that started after disruptions in Russian gas supplies to Europe in 2022. But those facilities have a long return on investment (ROI) payout, so LNG facility investors need long-term commitments from buyers before launching into that process. But buyers are reluctant to commit to any fossil fuel for the long term because they fear it will be phased out before the agreement's end, leaving them stuck buying something that no one needs.
So the irony is that the reluctance to sign a contract "could be another bottleneck in making progress toward climate goals," Knutsson said.
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) 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 over 200,000 current and future projects worth $17.8 Trillion (USD).
