Natural gas: A bridge or destination fuel?

Alex Shinkarovsky's picture
Alex Shinkarovsky, Business Development / Operations, AltHub
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Growing as a share of the global energy mix: In 2017, according to the International Energy Agency (IEA), “global natural gas demand grew by 3%, the highest increase since 2010” and “preliminary data suggest 3.7% year-on-year (YOY) growth, double the average growth rate of 1.5% over the prior five years” (IEA Gas Market Report 2018, IEA Preliminary Estimates 2017).

30% of the 2017 increase in global demand came from China. In a drive to “Make the Skies Blue Again”, China’s national policy promotes natural gas in both power generation and industry. Priorities include reducing steel production capacity, shuttering old and inefficient coal plants, converting coal-fired boilers to run on gas and building out gas transportation infrastructure. This trend is expected to continue in East Asia and in the developing world.

Looking forward, remarkably, the leading prognosticators and forecasters agree that Natural Gas “in the medium-term (up to 2040)…remains the major fuel” even if the world can successfully reach a 2° Celsius scenario (Paltsey, MIT, 2018).

Current questions being discussed by experts and policymakers in 2018 conferences, quarterly calls and meetings include:

For a low-carbon future, is Natural Gas a “Bridge” or “Destination” Fuel? In other words, “What will the world’s energy mix look like in 2050?”. While a detailed view is beyond the scope of this article, it is sufficient to highlight key factors considered by analysts. The question broadly turns on the cost of deploying renewables and the energy storage which reduces their inherent intermittency for power generation. Carbon Capture and Sequestration (CCS) technology is another technology which has the potential to dramatically change the direction of the energy transition, depending on its cost curve. Finally, while currently in disfavour and at a disadvantage across the EU, U.S. and Japan, Nuclear still competes in a carbon-sensitive marketplace. The pace of the change in the passenger and freight transportation marketplace, especially in electrification and always-present geopolitical factors are all factors critical for analysts.

How can marketers promote gas relative to other fossils and renewables? Broadly, compared to other fossil fuels, gas is preferred relative to coal or fuel oil in power generation because of lower pollutive capacity and lower full-cycle greenhouse gas (GHG) emissions. According to the IGU (International Gas Union), marketers and producers may consider seizing the opportunity to advocate for a full-scale Carbon Pricing regime and stricter air quality, emissions regulations and efficiency standards. While seemingly against their interests, both carbon pricing and tighter regulations will accelerate the transition away from dirtier fuels and can elucidate the advantages of the fuel relative to other fossils to the public and to policymakers. Interesting environmentally friendly potential use-cases for the natural gas include transportation (CNG and LNG used trucking and maritime shipping) and the conversion of gas to hydrogen.

The lower GHG emissions are positive to the marketability of natural gas but are also can prove to be a liability for the image of the fuel as clean if miscalculated or underestimated. The Environmental Defense Fund (EDF) recently released a report showing methane releases as being 60% higher than EPA estimates, threatening the image as a cleaner product when full-cycle GHG emissions are considered. As drone, satellite, sensor and tracking technologies improve, the industry needs to be ahead of the curve on limiting methane releases across the entire value chain, especially in a news environment where context is often ignored and headlines drive decision-making.

As low-carbon policy is largely driven by state actors, producers and marketers must be sensitive to promoting the environmental benefits of natural gas and self-regulate to reduce emissions across the value chain. Developing breakthrough technologies and driving down costs will help gas continue to compete with other fossils and renewables.

Register for Gastech 2018 to make sure you do not miss the keynote address on Monday 17th September on "The Role for Gas in the Energy Transition" and many more key gas and LNG topics within the industry.