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| Tue, 17th Nov 2020 16:00:00 |
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Climate Targets Could Slash Natural Gas Investment By $1 Trillion |
Limiting global warming to 2 degrees Celsius above the temperature in pre-industrial times could mean significantly reduced investments in natural gas supply through 2040, analysts warn. If the world is to go down the 2-degree pathway, investment in new natural gas exploration and production could be slashed by 65 percent, from nearly US$2 trillion to US$700 billion, by 2040, because gas demand would peak earlier than previously thought, Wood Mackenzie said in a recent report.
While international agencies and supermajors are now competing in calling the date for peak oil demand, talk of peak demand for natural gas is not so mainstream.
There may be a reason for that—as things stand with the global energy mix and the rise of renewable energy sources, natural gas—a fossil fuel—will be fueling the energy transition, at least at these early stages, and at least until battery and energy storage technologies evolve so much as to allow cost-effective seamless integration of solar and wind power into the energy mix.
Environmental Concerns And Natural Gas
These days, investors are increasingly looking at the environmental credentials of every source of energy. While burning cleaner than coal, natural gas emits methane, which is incomparably more carbon-intensive than carbon dioxide. Methane emissions, including from flaring and leaks, are a thorn in the side of natural gas developers and Big Oil, which continue to bet big on gas and liquefied natural gas (LNG) even as they pledge to become net-zero businesses by 2050 or sooner.
After decrying coal and oil for years, climate activists have now turned to attacking natural gas as the latest fossil fuel that should be kept in the ground. Investors, who are becoming more and more Environmental, Social, and Corporate Governance (ESG) conscious, also increasingly demand evidence of carbon reduction, carbon capture technology, and efforts at sustainability from gas projects and developments.
“Sustainable investment is booming and investor activism on carbon has gone mainstream as more fund managers embrace ESG screening. This increasing scrutiny of gas’ carbon intensity is shaping investment decisions on future supply,” Wood Mackenzie Asia Pacific vice president Gavin Thompson said in a news release.
Natural Gas Is Here To Stay Despite the environmentalist backlash against emissions in the natural gas supply chain, the world will need natural gas to fuel the energy transition, at least in the first couple of decades.
Global gas consumption will continue to grow.
San Francisco may have just banned natural gas in new buildings to cut its greenhouse gas emissions, but the two fastest-growing economies and most populous countries in the world, India and China, are still relying on coal for a large part of their energy mix. China and India will need increased amounts of natural gas if they are to kick their coal addiction and clean up air pollution in cities.
In India, for example, natural gas is the only fossil fuel set to grow through 2050 in all three BP scenarios, according to the supermajor’s Energy Outlook 2020, which in general sees the global outlook for gas as more resilient than those for either coal or oil. In India, renewables will grow strongly regardless of the scenario, and natural gas will help to incorporate them into the energy mix.
Natural gas could also help ‘hard to abate’ emissions in the industrial sector with emerging technologies involving the use of gas, according to the Global Gas Report 2020 of the International Gas Union (IGU), research company BloombergNEF (BNEF), and Italian gas infrastructure firm Snam.
“Gas technologies can play a major role in the low-carbon transition. As countries and regions pursue a low-carbon transition, technologies such as biomethane, hydrogen and gas with carbon capture could play an important role, serving to decarbonize sectors of the economy that are currently seen as ‘hard to abate’, and providing opportunities for long-term growth for the gas industry,” the report said.
Big Oil Doubles Down On LNG
Biomethane, hydrogen, and production of ‘blue hydrogen’, where natural gas is used to make hydrogen with carbon capture, are part of the low-carbon technologies on which Europe’s Big Oil bet in their net-zero emissions goals. LNG also continues to be an important part of portfolios as everyone expects global natural gas demand to continue growing for the foreseeable future.
While it pledged to cut oil and production by 40 percent through 2030, BP aims to boost its LNG portfolio from 15 million tons per annum (mtpa) now to 25 mtpa by 2025 and 30 mtpa by 2030, chief financial officer Murray Auchincloss said on BP’s new strategy presentation in August.
To reduce emissions and become a broad energy company, France’s Total will grow its energy production by one third, with half the growth coming from LNG and half from electricity, mainly from renewables. Total’s chief executive Patrick Pouyanné told French newspaper Le Parisien in September that the firm aims to be among the world’s top five producers of renewable energy. The company’s operations mix today is 55 percent oil, 40 percent gas, and less than 5 percent electricity from renewables, Pouyanné said, noting that in 2050, Total’s operations will be divided into 20 percent oil, 40 percent gas, and 40 percent renewable energy.
Big Oil is convinced that natural gas will play an important role in the energy transition. Now the global gas industry needs to convince skeptics and environmentally-conscious investors that they can address the emission elephant in the room.
“Gas has a bright future, critical to combating air pollution and transitioning the world to a net-zero future. Addressing emissions and exposure to carbon is vital. The gas industry of the future must become synonymous with ESG,” WoodMac’s Thompson says.
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