Increased scrutiny over the environmental impact of natural gas—a key source of methane, which is a much more harmful greenhouse gas than carbon dioxide—has some industry analysts questioning the long-term prospects of global gas demand in the energy transition.
Big Oil has bet big on natural gas developments in the past decade, expecting incessant growth in demand for decades to come. Today, the majors continue to expect solid demand for natural gas, justifying investments in more production.
But investors and buyers of natural gas have started to fret over the emissions impact of the fuel.
This could create risks for the biggest oil and gas corporations, including Shell, Total, and ExxonMobil, according to Sarah McFarlane of The Wall Street Journal.
Those three supermajors and many other oil and gas companies have bet big on growing their natural gas divisions to meet what they see as continued growth in global gas demand.
The net-zero and energy transition narrative, however, has changed the overall narrative in the gas industry—buyers want net-zero cargoes, while producers and sellers pledge carbon capture and reduction of methane emissions.
Natural gas demand will continue to grow in the coming years, after fully recouping this year the losses from the 2020 pandemic shock, the International Energy Agency (IEA) said earlier this year.
Asia is set to continue leading that growth, while many Western markets, including the European Union (EU), will start to pay more attention to the environmental credentials of natural gas. Related: Oil Markets Already Priced In An OPEC+ Output Cut Extension
Case in point: at the end of last year, France’s utility Engie canceled a contract to buy liquefied natural gas (LNG) from the United States because of the high carbon intensity of shale gas production.
Asia, however, especially the key demand growth drivers China and India, are not expected to see a decline in natural gas and LNG demand anytime soon. In India, for example, natural gas is the only fossil fuel set to grow through 2050 in all three scenarios in BP’s Energy Outlook 2020, which sees the global outlook for gas as more resilient than those for either coal or oil.
In order to retain and grow markets in the energy transition, oil and gas majors and other gas resource developers need to address the emissions issue, analysts say.
Gas developers have started to heed those calls. Qatar, for example, included plans for a CO2 capture and sequestration (CCS) system as part of what would be the world’s largest LNG project in terms of capacity.
The world’s biggest independent LNG trader, Shell, aims to further grow its LNG capacity, as is sees LNG demand nearly doubling from 360 million tons last year to 700 million tons by 2040, thanks to continued solid demand from Asia and a rise in gas use for powering hard-to-electrify sectors.
Shell looks to deliver more than 7 million tons per annum of new capacity on-stream by the middle of the 2020s and vows to offer more carbon-neutral LNG cargoes. Shell aims to keep methane emissions intensity below 0.2 percent by 2025, along with using drones and laser detection technology to quantify and curb those emissions.
The supermajors also believe that LNG as a lower-emission marine fuel and hydrogen production from gas plus carbon capture will be growing markets for their gas divisions.
ExxonMobil, for example, said on its Investor Day this month it was positioned to succeed in hydrogen, noting that low-carbon hydrogen from natural gas with CCS has cost and scale advantages versus alternatives.
Total, which is betting on profitably growing its LNG and renewable businesses, wants to expand its LNG bunker supply as it targets serving more than 10 percent of the global LNG bunker market.
Shipping giant A.P. Moller – Maersk, however, is foregoing LNG as a marine fuel.
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“We don’t believe that LNG is going to play a big role for us as a transition fuel because it is still a fossil fuel. And we would rather go from what we do today, straight to a CO2-neutral type of fuel. But that will be years out in the future, I suspect,” CEO Søren Skou said on the Q3 earnings call last November.
Demand for natural gas will continue to grow, driven by Asia, but investors and buyers will increasingly demand lower-emission energy sources.
“The gas industry of the future must become synonymous with ESG,” Wood Mackenzie Asia Pacific vice president Gavin Thompson said.
By Tsvetana Paraskova for Oilprice.com
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Natural gas including LNG is essential for weaning the world off coal. Moreover, global energy transition wouldn’t succeed without major contributions from both natural gas and nuclear energy. As a result the notion of zero emissions is an illusion.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London