Lower-for-longer oil prices and the advance of renewable energy and electric vehicles have made Big Oil plan for a gradual shift toward natural gas in their production portfolios.
All current projections point to natural gas as the fastest-growing fossil fuel in the energy mix for decades to come. Pitched as the cleanest burning hydrocarbon (compared to coal and oil), natural gas is expected to be the bridge fuel between coal and renewables, until storage solutions allow renewables to become less intermittent.
How bright natural gas’s future will be depends on how competitive its prices are, especially in the Asian markets, according to Bloomberg Gadfly columnist Liam Denning.
There’s no doubt that natural gas demand will continue to rise. The questions are: By how much? And, will natural gas have the time to assert itself as the cleaner bridge fuel until renewables take over?
All of Big Oil’s five are betting on natural gas in the future.
Natural gas already makes up more than half of Shell’s production. Total’s chief executive Patrick Pouyanne says that gas is the fossil fuel of the future and is “flexible enough to offer the right combination with renewables… we are positioning Total more and more on gas, and in 35 years Total will produce and distribute more gas than oil.”
BP plans on lower-for-longer oil prices and is “shifting towards gas in our portfolio as part of our business strategy.” ExxonMobil sees natural gas as “a major game changer with fewer emissions, flexibility and abundance.” Natural gas is a growing segment of Chevron’s energy portfolio, and the group says it has “the capabilities required to develop resources and deliver natural gas to markets where its use is growing.”
According to the International Energy Agency (IEA), global gas demand is expected to grow by 1.6 percent annually over the next five years, with China accounting for 40 percent of this growth.
Looking at the longer term, until 2040, China needs to accelerate the pace of building gas-fired generation capacity to 8.7 gigawatts annually, compared to 5 GW built every year between 2010–2015, to underpin growth projections of 1.6 percent, Alex Dewar of Boston Consulting Group’s Center for Energy Impact tells Bloomberg’s Denning.
China is already preparing for a natural gas import boom, and is building LNG import facilities as it pushes for cleaner energy to cope with severe pollution.
The LNG market is already well supplied, and new U.S. liquefaction capacity is also coming online. “This LNG glut is already affecting price formation and traditional business models—and attracting new LNG-consuming countries like Pakistan, Thailand and Jordan,” the IEA said in its Gas 2017 report.
According to Dewar, the current glut may hurt LNG providers in the short term due to depressed prices, but it could help them in the longer run because the oversupply also encourages the construction of infrastructure by current and potential buyers.
Industry will be the leading demand growth driver through 2022, according to the IEA, while power generation—the main gas-consuming segment—is expected to grow more modestly, by less than 1 percent annually.
“In many mature markets, the rapid increase in power generation from renewables, combined with modest growth in electricity demand, limits opportunities for thermal generation. In many emerging markets that rely on imported gas, especially those without a price on carbon or strict regulations on air pollution, gas faces very strong competition from coal,” the IEA said.
Until 2022, the IEA sees gas gaining a firmer foothold in South and East Asia as the availability of ample, competitively priced supply would help to expand opportunities. China and India will lead the demand growth in Asia, but other countries such as Pakistan and Bangladesh “show a similar picture of strong growth underpinned by cheaper LNG and incremental gas use for power and industry.”
Global natural gas demand will certainly increase, but to what extent largely depends on natural gas price competitiveness compared to renewables, and to coal in markets without carbon pricing.