Introduction In the midst of a global energy crisis in which shortages of natural gas have played a central role, fundamental questions are now being asked about the long-term future of natural gas. The crisis has reminded policy makers and energy consumers of the immediate importance of stable and affordable natural gas supplies. The traditional arguments in favour of gas – its role as a reliable partner to the clean energy transition and its ability to step in to fill the gap left by declining coal and oil – are also being tested. Gas is a versatile fuel used widely across the energy economy, but this means that in the current context higher prices and tight supplies are affecting a wide range of energy services and industrial supply chains, such as food, textiles and raw materials. Natural gas prices in importing countries in Europe and Asia are likely to remain increasingly volatile and in relatively high ranges over the next few years, as Europe’s drive to reduce reliance on Russian imports keeps global gas markets tight during a relatively barren period for large new gas export projects. A rebalancing is expected from the mid-2020s, when a slate of new LNG supply projects come online. But the “golden age of gas” that the IEA posited in 2011 is now appearing in the rear-view mirror: gas remains a major part of the global energy mix, but today’s crisis has undercut momentum behind natural gas expansion in some large potential markets in South and Southeast Asia. Whether today’s crisis leaves an enduring dent in the idea of natural gas as a transition fuel is a crucial uncertainty for global energy.

Global gas trends The starting point of this study is to compare the trajectory for natural gas demand across several recent scenario-based assessments. Such assessments involve different assumptions regarding macroeconomic conditions, underlying energy service demand as well as technologies, costs, policy evolution and commodity prices across different geographies, timeframes and scenarios. This naturally leads to different scenario outcomes. Scenario design is a key parameter: exploratory scenarios fix some key starting conditions and examine what they imply for the future. Normative scenarios fix the end point and work out how to get there. Comparing growth projections across a sample of global assessments, the consensus view is that natural gas fares moderately well in the coming decade, but there are large divergences beyond that. From a starting level of 4 200 bcm in 2021, two scenarios anticipate natural gas to rise above 5 000 bcm by 2050, four scenarios see demand in a range between 4 000 – 5 000 bcm, another four fall in a range between 2 500 – 4 000 bcm, while the remaining four scenarios see demand below 2 500 bcm by 2050.

Natural gas demand in the World Energy Outlook 2022 compared to other scenariobased assessments

The primary factor explaining the difference is the level of climate ambition. But within this there are a number of key assumptions about sectoral and technological trends. In the near-term to 2030, scenarios differ regarding the pace and scale of renewables deployment in the power sector and the extent to which coal-to-gas switching is utilised for the energy transition. Over the long-term, scenarios differ regarding the rate of industrial heat decarbonisation, the role of natural gas as an input to hydrogen production, and the extent to which natural gas will play an enduring role in providing flexibility to power systems. Broader energy system transformations are equally likely to affect the outlook for gas, such as the extent to which carbon capture, utilisation and storage (CCUS) and negative emissions technologies play a large role. Assumptions about gas prices and the overall costcompetitiveness of alternative technologies can also change the level of natural gas demand in subsequent decades.

In the power sector, natural gas demand declines by about 3% in the STEPS between 2021 and 2030, with gains in emerging market and developing economies more than offset by declines in advanced economies. In the APS, faster growth in renewables means that more natural gas‐fired power plants move from baseload to flexible providers of electricity generation, meaning less gas is consumed in the power sector even as additional capacity is added for flexibility purposes; there is limited coal‐to‐gas switching as demand shifts directly to renewables or other low‐emissions options. This effect is more pronounced in the NZE Scenario, where power sector gas demand falls by 450 bcm, or 25% of 2021 levels, by 2030.

Natural gas demand by sector and scenario, 2020-2050

Across all three scenarios, natural gas is anticipated to decline in advanced economies. This is in large part thanks to growing policy support and incentives for clean energy and efficiency, both of which erode natural gas’ market share in all sectors. In the United States, the Inflation Reduction Act gives significant tax incentives and other forms of support to renewables, nuclear and biogases – alongside efficiency and heat pumps. In Japan, the long-term focus on lowemissions fuels such as ammonia and hydrogen, alongside the mid-term planned restart of nuclear, translates into a relatively rapid reduction in LNG demand, to as much as 40% below 2021 levels by 2030, with the pace of reduction dependent on the pace of deployment and implementation of new energy and nuclear energy initiatives. In the European Union, the full implementation of Fit for 55 and additional ambitions in the RePowerEU communication means natural gas demand falls 20% below 2021 levels.

Change in natural gas demand by region and scenario

In emerging market and developing economies, natural gas demand in the STEPS rises by 110 bcm between 2021 and 2030, at around one-fifth of the growth rate seen in the previous decade. China’s annual demand growth in particular decelerates sharply, from an average of 12% per year between 2010 and 2021 to 2% per year between 2021 and 2030. There is less scope for coal‐to‐gas switching and increased use of electricity in industry compared to the STEPS in the World Energy Outlook 2021. Affordability concerns in some parts of Asia, particularly Pakistan and Bangladesh, alongside maturing domestic production and persistent hurdles to building import infrastructure in Southeast Asia, all dampen momentum behind gas.

Natural gas supply, trade and investment Investment in upstream natural gas supply in the STEPS and APS, 2015-2030

Despite flat or declining natural gas demand in the STEPS and APS, additional upstream investment is nonetheless required to offset declines from existing fields. Recently approved projects add around 400 bcm per year to global gas supply by the end of the 2020s. This leaves around 720 bcm of new upstream supply needed to meet gas demand in the STEPS by 2030. This new supply requirement falls to just under 500 bcm in the APS. In the NZE Scenario, the reductions in natural gas demand are sufficiently steep that it is possible to meet them, in aggregate, by continued investment in existing assets and already approved projects, but without any new long lead time upstream conventional projects.

In all scenarios, there is a need to reduce the emissions intensity of gas supply by reducing flaring and methane leaks. More than 260 bcm of natural gas is wasted each year in this way. It is unlikely that all of this can be avoided, but according to the IEA’s Methane Tracker an estimated 200 bcm of additional gas could be brought to markets with the right policies and on-the-ground implementation. Stopping this waste of natural gas would also reduce global temperature rise by nearly 0.1 °C by mid-century, with an effect equal to eliminating the GHG emissions from all of the world’s cars, trucks, buses and two- and three-wheeler vehicles. According to the IEA’s Methane Tracker, around USD 100 billion in investment is required to 2030 to deploy all methane abatement measures in the oil and gas sector, and the majority can be deployed at no net cost given the captured gas can be marketed and sold.

LNG trade by scenario compared to existing and under-construction capacity, 2015-2050

Around half of all upstream gas projects approved in the last five years have been explicitly tied to LNG export projects. In the STEPS an additional 240 bcm per year of LNG export capacity is needed by 2050 above what currently exists or is under construction (even as the rate of growth in LNG trade between 2021 and 2030 falls to one-fifth of the levels of the last five years). In the APS, only projects currently under construction are required. In the NZE Scenario, a sharp decrease in natural gas demand globally means that even these projects are in many cases no longer necessary. This wide spectrum of LNG requirements creates a dilemma for sponsors of new LNG projects, where the risk of unrecovered capital increases with greater climate ambition. The main exposure is via lower equilibrium gas prices. In some cases, this risk is mitigated by long-term contracts offering stable pricing conditions; however, for importers there is a risk of exposure to relatively high gas prices for decades, in a broader context of demand uncertainty.

Source:http://IEA