NATURAL GAS AND $150 BILLION INVESTMENT DYNAMICS
As Natural Gas is a cleaner fossil fuel than crude oil, analysts say its demand will grow faster than other hydrocarbon energy mix. **
By Atique Naqvi, aka Syed Atique Hussain, Boston, United States
As oil prices touched $70 a barrel at the beginning of the third week in January 2018, the general oil and gas industry sentiment looks positive for this year. Charif Souki, who is considered as the energy guru in the United States, told CNBC the same week that the natural gas industry would require more than US$150 billion of infrastructure investment over the next five years.
Souki, co-founder, and chairman of LNG firm Tellurian says investments in the natural gas infrastructure are proving to be a bigger hurdle for the sector’s growth than many people think. Also, North American natural gas businesses are anticipating “The Great Return of The Alaskan Ridging” owing to the US President Donald J Trump’s decision to open up the environmentally fragile US state for drilling.
Industry analysts have projected that natural gas to be the fastest growing fossil fuel in the overall energy mix as it’s cleaner than oil and coal. Also, natural gas is seen as a balancing fuel between oil and renewables from the environmental perspective, so the positive sentiment is all but natural.
ENVIRONMENTAL ASPECT
Senior analysts at International Energy Agency Tim Gould and Christophe McGlade have linked natural gas and clean environment in their latest outlook note.
“The role that natural gas can play in the future of global energy is inextricably linked to its ability to help address environmental problems. With concerns about air quality and climate change looming large, natural gas offers many potential benefits if it displaces more polluting fuels. This is especially true given limits to how quickly renewable energy options can be scaled up and that cost-effective zero-carbon options can be harder to find in some parts of the energy system.
“The flexibility that natural gas brings to an energy system can also make it a good fit for the rise of variable renewables such as wind and solar PV.
“There is very little dispute about the emissions associated with natural gas combustion. However, there is much less consensus over the level of direct methane emissions that can occur – whether by accident or by design – on the path from oil or gas production to final consumer. This is a critical issue for the long-term natural gas outlook: methane is a potent greenhouse gas and the uncertainty over the level of methane emitted to the atmosphere raises questions about the extent of the climate benefits that gas can bring.
“The emissions from natural gas combustion are well-known and show clear advantages for gas relative to other fossil fuels. CO2 emissions (per unit of energy produced) from gas are around 40 percent lower than coal and around 20 percent lower than oil,” write Gould and McGlade.
In its recent meeting in Istanbul, the World Energy Council said that in the face of an anticipated peak of energy demand growth, a move towards renewable energies and the possible emergence of disruptive technologies, fossil fuels face a perfect storm over the next thirty years.
“Of the three main hydrocarbon fuels - oil, gas, and coal, only gas faces a moderately secure future though there are clear risks on the horizon.
All of the Council’s scenarios see global gas demand growing while retaining a share between 25 percent and 30 percent of the global energy mix.
It further says: “Thanks to large reserves, gas supplies are likely to be plentiful in the medium to long term making the cleanest of hydrocarbons a good bridge to a low-carbon future. However, the pressure for continued de-carbonization of energy supplies means that this relatively clean fuel is likely to come pressure for continued de-carbonization of energy supplies means that this relatively clean fuel is likely to come under demand-side pressure.
GROWTH IN ASIA
The Energy Council has identified Asia as the growth area for the natural gas sector. It says from 2014 to 2030 Asia accounts for half of the demand growth. This trend increases beyond 2030, with China and India accounting for more than 50 percent of the growth in gas consumption.
Thus, energy commodity prices become increasingly volatile and pricing at regional hubs sees widening differentials. Its growth averages 1.6% p.a. in the years to 2030, led by North America and Europe. Beyond 2030, the gas growth slows substantially in Europe while North America sees a slight decline. However, China, India, Middle East and North Africa and Latin America continue to see significant growth in natural gas demand to 2060.
Some of the key findings of the World Energy Council revealed during Istanbul meetings are:
• Gas is expected to provide a cleaner bridge to a renewable energy future; it is the only fossil fuel energy source which is projected to grow to 2050 during The Grand Transition – a period when demand for either coal and oil will peak. However, the long-term future for gas is less secure: there needs to be further investment and innovation to ensure that natural gas holds an essential place in the global energy mix to 2060, but beware of stranded resources with the trend to carbon pricing.
• Over the coming decades, the pattern of demand and pace of growth will reflect significant diversity in regional market dynamics with peak demand in some regions and continued growth in some others. The geographical center of the global gas market will shift to Asia, where demand is expected to grow rapidly, providing new national policy frameworks and policy reforms are forthcoming and successfully implemented in key countries, such as China and India. Meanwhile, demand growth in Europe and North America is expected to stagnate or even decrease.
• In the near-medium term, the role of gas will be closely linked with developments in the power sector. Global electricity demand is expected to double by 2060 and the power sector offers the highest growth potential for natural gas. An increasing market share in power generation will be the main driver of gas demand growth in the medium term but gas faces tough competition from other energy sources, notably renewables, and the scope for growth will depend on key policy decisions by governments and regulators and presents the highest uncertainty.
• There is a significant downside risk for gas if it doesn't succeed to innovate and develop new technologies making it “cleaner” and increasingly “renewable”. All of the Council’s scenarios fail to secure global warming below 2 degrees and further moves to reduce the use of fossil fuels in the energy mix would impact gas. The share of gas in power generation would especially be at risk in the absence of commercially viable Carbon Capture and Storage (CCS) and the economic viability of new technologies like biogas or Power to Gas is a challenge for gas evolving towards a renewable energy source.
GAS SUPPLY SECURITY
Italian natural gas giant Snam and global consulting firm Boston Consulting Group have laid out the importance of security of gas supplies for the development of the sector.
The joint study says gas reserves and production may be widely available on a global basis, supply and trade discontinuities combined with geopolitical concerns can limit access to gas in specific markets.
In Europe for example, the reliance on Russia gas imports has prompted the European Commission and national governments to seek to diversify sources of supply through LNG and pipeline imports from other regions. Meanwhile, in Asia geopolitical constraints have delayed the proposed TAPI (Turkmenistan-Afghanistan-Pakistan-India) and the Iran-Pakistan-India pipelines for decades, preventing the region from accessing substantial gas reserves in Turkmenistan, says the study.
In practice, two factors have been shown to consistently help overcome supply availability and security challenges for specific countries: First, domestic production of gas can directly achieve localized supply availability and provides domestic political control over gas supply. Local gas production tends to support more competitive pricing, unlock investment in gas infrastructure, and generally alleviate supply security concerns.
Second, growing and diversifying natural gas infrastructure and access to gas trade promotes flexible and abundant gas supply, in turn improving supply security. The development and diversification of global LNG trade have helped to advance availability and security, particularly due to more flexible contracting and availability of spot markets.
** This article first appeared in Unisol magazine (Essel Group Middle East) published by Mediaquest Corp, Dubai, UAE.
By Atique Naqvi, aka Syed Atique Hussain, Boston, United States
 |
| CO2 emissions from natural gas are around 40% lower than coal. |
As oil prices touched $70 a barrel at the beginning of the third week in January 2018, the general oil and gas industry sentiment looks positive for this year. Charif Souki, who is considered as the energy guru in the United States, told CNBC the same week that the natural gas industry would require more than US$150 billion of infrastructure investment over the next five years.
Souki, co-founder, and chairman of LNG firm Tellurian says investments in the natural gas infrastructure are proving to be a bigger hurdle for the sector’s growth than many people think. Also, North American natural gas businesses are anticipating “The Great Return of The Alaskan Ridging” owing to the US President Donald J Trump’s decision to open up the environmentally fragile US state for drilling.
Industry analysts have projected that natural gas to be the fastest growing fossil fuel in the overall energy mix as it’s cleaner than oil and coal. Also, natural gas is seen as a balancing fuel between oil and renewables from the environmental perspective, so the positive sentiment is all but natural.
ENVIRONMENTAL ASPECT
Senior analysts at International Energy Agency Tim Gould and Christophe McGlade have linked natural gas and clean environment in their latest outlook note.
“The role that natural gas can play in the future of global energy is inextricably linked to its ability to help address environmental problems. With concerns about air quality and climate change looming large, natural gas offers many potential benefits if it displaces more polluting fuels. This is especially true given limits to how quickly renewable energy options can be scaled up and that cost-effective zero-carbon options can be harder to find in some parts of the energy system.
“The flexibility that natural gas brings to an energy system can also make it a good fit for the rise of variable renewables such as wind and solar PV.
“There is very little dispute about the emissions associated with natural gas combustion. However, there is much less consensus over the level of direct methane emissions that can occur – whether by accident or by design – on the path from oil or gas production to final consumer. This is a critical issue for the long-term natural gas outlook: methane is a potent greenhouse gas and the uncertainty over the level of methane emitted to the atmosphere raises questions about the extent of the climate benefits that gas can bring.
“The emissions from natural gas combustion are well-known and show clear advantages for gas relative to other fossil fuels. CO2 emissions (per unit of energy produced) from gas are around 40 percent lower than coal and around 20 percent lower than oil,” write Gould and McGlade.
In its recent meeting in Istanbul, the World Energy Council said that in the face of an anticipated peak of energy demand growth, a move towards renewable energies and the possible emergence of disruptive technologies, fossil fuels face a perfect storm over the next thirty years.
“Of the three main hydrocarbon fuels - oil, gas, and coal, only gas faces a moderately secure future though there are clear risks on the horizon.
All of the Council’s scenarios see global gas demand growing while retaining a share between 25 percent and 30 percent of the global energy mix.
It further says: “Thanks to large reserves, gas supplies are likely to be plentiful in the medium to long term making the cleanest of hydrocarbons a good bridge to a low-carbon future. However, the pressure for continued de-carbonization of energy supplies means that this relatively clean fuel is likely to come pressure for continued de-carbonization of energy supplies means that this relatively clean fuel is likely to come under demand-side pressure.
GROWTH IN ASIA
The Energy Council has identified Asia as the growth area for the natural gas sector. It says from 2014 to 2030 Asia accounts for half of the demand growth. This trend increases beyond 2030, with China and India accounting for more than 50 percent of the growth in gas consumption.
Thus, energy commodity prices become increasingly volatile and pricing at regional hubs sees widening differentials. Its growth averages 1.6% p.a. in the years to 2030, led by North America and Europe. Beyond 2030, the gas growth slows substantially in Europe while North America sees a slight decline. However, China, India, Middle East and North Africa and Latin America continue to see significant growth in natural gas demand to 2060.
 |
| Gas is expected to provide a cleaner bridge to a renewable energy future. |
Some of the key findings of the World Energy Council revealed during Istanbul meetings are:
• Gas is expected to provide a cleaner bridge to a renewable energy future; it is the only fossil fuel energy source which is projected to grow to 2050 during The Grand Transition – a period when demand for either coal and oil will peak. However, the long-term future for gas is less secure: there needs to be further investment and innovation to ensure that natural gas holds an essential place in the global energy mix to 2060, but beware of stranded resources with the trend to carbon pricing.
• Over the coming decades, the pattern of demand and pace of growth will reflect significant diversity in regional market dynamics with peak demand in some regions and continued growth in some others. The geographical center of the global gas market will shift to Asia, where demand is expected to grow rapidly, providing new national policy frameworks and policy reforms are forthcoming and successfully implemented in key countries, such as China and India. Meanwhile, demand growth in Europe and North America is expected to stagnate or even decrease.
• In the near-medium term, the role of gas will be closely linked with developments in the power sector. Global electricity demand is expected to double by 2060 and the power sector offers the highest growth potential for natural gas. An increasing market share in power generation will be the main driver of gas demand growth in the medium term but gas faces tough competition from other energy sources, notably renewables, and the scope for growth will depend on key policy decisions by governments and regulators and presents the highest uncertainty.
• There is a significant downside risk for gas if it doesn't succeed to innovate and develop new technologies making it “cleaner” and increasingly “renewable”. All of the Council’s scenarios fail to secure global warming below 2 degrees and further moves to reduce the use of fossil fuels in the energy mix would impact gas. The share of gas in power generation would especially be at risk in the absence of commercially viable Carbon Capture and Storage (CCS) and the economic viability of new technologies like biogas or Power to Gas is a challenge for gas evolving towards a renewable energy source.
GAS SUPPLY SECURITY
Italian natural gas giant Snam and global consulting firm Boston Consulting Group have laid out the importance of security of gas supplies for the development of the sector.
The joint study says gas reserves and production may be widely available on a global basis, supply and trade discontinuities combined with geopolitical concerns can limit access to gas in specific markets.
In Europe for example, the reliance on Russia gas imports has prompted the European Commission and national governments to seek to diversify sources of supply through LNG and pipeline imports from other regions. Meanwhile, in Asia geopolitical constraints have delayed the proposed TAPI (Turkmenistan-Afghanistan-Pakistan-India) and the Iran-Pakistan-India pipelines for decades, preventing the region from accessing substantial gas reserves in Turkmenistan, says the study.
In practice, two factors have been shown to consistently help overcome supply availability and security challenges for specific countries: First, domestic production of gas can directly achieve localized supply availability and provides domestic political control over gas supply. Local gas production tends to support more competitive pricing, unlock investment in gas infrastructure, and generally alleviate supply security concerns.
Second, growing and diversifying natural gas infrastructure and access to gas trade promotes flexible and abundant gas supply, in turn improving supply security. The development and diversification of global LNG trade have helped to advance availability and security, particularly due to more flexible contracting and availability of spot markets.
** This article first appeared in Unisol magazine (Essel Group Middle East) published by Mediaquest Corp, Dubai, UAE.
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