Natural gas and the energy transition

The latest Gas Mark Report from the International Energy Agency (IEA) is another reminder of natural gas’s place at the centre of the energy transition to Net Zero.

The challenge is to ensure decision-makers and civil society see it has such. This is an opportunity for responsible energy firms, investing in the transition and natural gas, to communicate the economic, social value and environmental value they create.

Natural gas has lower emissions than coal and oil, so as we de-carbonise the energy mix, it makes sense to reduce output from coal first, and switch to natural gas as renewables come on stream. Unfortunately, there has been insufficient investment in natural gas production, with the consequence that the use of coal in power generation is rising, not falling. This is because it is by far the cheapest energy source and in times of shortage it comes online first.

The IEA says that natural gas consumption recovered by 4.6% in 2021, more than twice the pace at which it declined the previous year. Its forecast is that natural gas consumption is set to grow further to a record 4,148 bcm by volume in 2022. Prices in Europe and Asia hit a record high at the end of 2021.

Pipeline deliveries from Russia into Europe declined during 2021, but overall global trade in natural gas, pipeline and LNG, grew at a record 9% as high prices encouraged flows into Asia and Europe.

The IEA believes high prices and volatility will continue to be an issue during 2022. It said: “Gas supply adequacy could emerge as a concern for the medium term on a combination of recent LNG project delays, the relatively small number of new LNG final investment decisions (FIDs) in 2020-2021 and a structural decline in upstream spending since the early 2010s.”

There are signs that the policy environment for investment may be loosening. The EU has recently indicated that it will include natural as a sustainable fuel in its taxonomy of environmentally sustainable economic activities and Sen. John Kerry, the US Climate Envoy, has said that natural gas allied with carbon capture and storage should be seen as a “bridge fuel.”

In the UK, the Prime Minister and the chancellor recently endorsed “the continuing transitional need for gas”. Soon the consultation of Climate Compatibility Certificates for new North Sea Projects will be concluded by regulators and this too might increase investment. Policy makers have to weigh energy poverty and energy security in the balance alongside Net Zero.

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