Gas And LNG Have A Role To Play In Net-Zero World
Gas and LNG have an important role to play in realizing a 1.5-degree scenario by 2050 – but the resulting market could be unrecognizable, Wood Mackenzie believes.
An accelerated energy transition scenario (AET-1.5) explores a pathway on which the rise in global temperatures since pre-industrial times is limited to 1.5 °C by the end of this century and reach global net-zero by 2050. Under AET-1.5, hydrocarbon demand declines rapidly, except for natural gas.
While decarbonization measures undoubtedly put pressure on end-use energy demand, gas still has a crucial role to play. The phase-out of coal supports gas, and there’s also a growing need for gas as a feedstock for blue hydrogen. And, crucially, with widespread electrification and buildout of renewables, gas paired with carbon capture and storage (CCS) can be a source of flexibility and dispatchable generation – even as battery technology is advancing.
However, Woodmac believes that this is only possible if CCS technology improves, allowing for an efficient, low-cost method of reducing emissions from gas.
Near-term gas and LNG investment is still needed as Europe pivots from Russian gas. Russia’s war with Ukraine sparked a massive shift in the global gas market – much of it irreversible. Demand for LNG in Europe in particular has soared.
However, a raft of FIDs, which has already begun and is likely to continue into the next year, will fill up this space quickly. FID momentum has continued after the 50 mmtpa of new capacity was sanctioned in 2021. So far this year the 13 mmtpa Plaquemines Phase 1 and two Fast LNGs have been sanctioned, one in the Congo and the other in Louisiana.
Later this year, in the U.S., Woodmac expects the second phase of Plaquemines and Cheniere’s Corpus Christi Stage 3 to follow, amongst others. This activity – coupled with continued expansion in Qatar – increases the risk of oversupply in the late-2020s or early-2030s in an AET-1.5 scenario. The window of opportunity will open again after that as Asian demand continues to grow but will be limited by long-term gas demand reduction.
Longer term gas demand decline is unavoidable in a 1.5-degree pathway. And the market could become more competitive and dynamic as green commodities for decarbonization, such as hydrogen and ammonia, enter the market in big way.
Inevitably lower prices and demand uncertainty would impact multi-billion-dollar investments into major fixed infrastructure projects – such as new large-scale international pipelines. Low prices would also challenge the economics of high-cost unconventional upstream developments and reduce the appetite for further exploration. Existing infrastructure assets may go underutilized as the market contracts faster than some assets reach the end of their lives.
The competitiveness of supply projects would likely be assessed very differently in an AET-1.5 scenario. Carbon offsetting and innovative commercial offerings will come into sharper focus. Broadly, company strategies, policies and investor attitudes may change, leading to a very different set of trade flows and reshaped commercial relationships.
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