Another reason why natural gas could win “the energy transition”
The demand for natural gas can only grow
Now at 375 Bcf / d, the reality of the global energy situation is that demand for natural gas is expected to increase dramatically in the years to come.
Any serious low-carbon prospect has gas as a fundamental resource.
Experts at McKinsey model “resilient” gas demand until 2050, even in an accelerated transition scenario to meet climate change targets.
The world is just too poor, too fast growing, and too thirsty for energy for this not to be true: more specifically, the US Department of Energy forecasts a 40 to 45% jump in global gas consumption.
The new climate roadmap from the International Energy Agency (IEA) assumes that energy demand will be 8% lower in 2050 than today, but will serve an economy twice the size and a population of over 2 billion additional people.
Sadly, as a very long-time fan of the IEA, I just don’t see this as a serious climate-energy stance, doing more harm than good (Figure).
More people, making more money has always had the same predictable result: much more energy, and the gigantic demographic and economic boom to come will bring the same to humanity.
As the IEA itself has just pointed out, new global demand for electricity is already surpassing the growth of renewables on its own – even more indicative of their limits since Covid-19 crushed energy needs.
After more than a decade of consistent record achievements for renewable energy, fossil fuels have not lost market share, still providing 83% of all global energy in 2020.
We keep kidding ourselves and pretending that none of this is true.
Indeed, there is a lot of money to be made in energetic unrealism.
The gas industry is becoming ever more sustainable
Since natural gas is hardly going away (gas is even crucial for the development of renewable energies since it provides back-up energy for their natural intermittence), the objective becomes to reduce gas emissions to a minimum. greenhouse effect (GHG).
One of the biggest misconceptions is the simplistic assumption that wind and solar power (and electric cars for transportation) will inevitably dominate the energy race.
But we know why this can’t be true: Wind and solar compete only in the electricity sector, which is only 20-25% of the way we humans consume energy. energy.
In contrast, gas is our most versatile fuel: used in electrical, industrial, heating, commercial and transportation applications.
The constant evolution of the gas industry is exemplified by the American Shale Revolution itself, which took off in 2008 when “hydraulic fracturing” technologies and horizontal drilling merged into a perfect union.
U.S. production had jumped nearly 70% in 2019, allowing low-cost, low-carbon natural gas to dominate our energy system.
Indeed, on the battlefield of energy markets and competition, renewables will not compete with natural gas technologies as they are today … but as they will become.
What they don’t want you to know: Innovation in the natural gas industry is uninterrupted.
For the United States, for example, reduction of methane emissions were much faster than the critics would admit.
Looking ahead, experts recommend other ways in which the industry could further reduce its emissions: 1) plug leaks in the process of fracking, processing and transportation, 2) upgrade obsolete equipment and 3) ) prohibit the discharge of methane directly into the atmosphere and continue to stop flaring.
Methane comprises about 95% of natural gas, which makes methane a product that industry, naturally, wants to capture more of.
Renewable gas, investments in hydrogen and a commitment to use renewable energy in operations (like those that operate the Keystone XL pipeline blocked by Biden) are just a few of the clean paths the industry is taking. .
Companies realize the concerns that investors have for its ESG positioning, so more cuts are assured.
The gas industry has a lot more to offer than you are told: Consolidation will mean massive investments by the world’s most technologically advanced companies to further reduce emissions.
Based in Denver, Canary project is a rapidly expanding ESG data platform to certify the most environmentally friendly source gas.
To illustrate this progress, I wonder why environmental groups aren’t jumping for joy at the latest big climate announcement for our biggest gas producer: “EQT, pledging to achieve net zero emissions by 2025, launches carbon storage pilot projects. “
The growth of carbon neutral LNG
Nowhere is this constant evolution of the gas industry more evident than in the sale of liquefied natural gas by cargo (LNG), key to the global future of the industry.
In fact, net zero companies like Shell and BP have plans to double their LNG portfolios to meet climate targets.
Started in the past two years, there have been around 15 carbon neutral LNG shipments ”,create a framework for real emission reductionsBy experts at Columbia University.
Stricter GHG restrictions will bring even more carbon neutral LNG.
The carbon neutral LNG market is set to quadruple this year, with even China recently got into the act.
When it comes to US LNG exports in particular, experts at Rice University report that soaring global demand, unrelated oil prices, and the perpetual hunt for supply diversification will keep us integrated. at the market.
Quietly, US LNG exports hit record highs under President Biden, even during the weaker summer demand period (~ 10 Bcf / d).
Assets sold are only opportunities for others
Not only assuming the death of an ever-changing industry like natural gas, there are other issues for those who demand the end of gas.
The reality is that 85% of the planet, or more than 6.7 billion humans, is still developing.
This huge bloc of some 160 energy-deprived countries cannot afford to limit their options for these essential fuels – provably essential because oil (37%) and gas (33%) provide 70% of the energy used. in the richest economy in the world, the United States.
The Western hypocrisy to the world’s poor that “we have prospered using oil and gas, but you are no longer allowed to do the same” falls on deaf ears (as it should) .
I find it highly unlikely that poor, still developing countries will adopt the same emission standards as rich and already developed countries (eg Africa versus Europe).
Their future energy needs are simply too great, and further economic upheaval must be avoided at all costs.
This is because for these forgotten billions, more access to energy is really a matter of life and death: “For energy, the poor deserve to be rich”.
And make no mistake, the political backsliding of climate-energy policies that increase the cost of energy while reducing its reliability is already starting to manifest itself, even in rich countries where additional energy needs are low and costs high. are more absorbable.
Since climate change is unmistakably a global problem (ie the purported national benefits of a one-sided policy need to be scrutinized), the idea “all pain, no gain” creeps in. even in the mindset of those in the richest and most climate-conscious countries:
· “The climate change program comes out with a bang” The Wall Street Journal, July 15, 2021
· “Swiss voters reject key measures against climate change”, BBC, June 13, 2021
· “Americans demand climate action (as long as it doesn’t cost much)” Reuters, June 26, 2019
· “Is the movement of” yellow vests “in France the start of a global revolt against climate action? “ Eco-Enterprise, April 2, 2019
As it stands, the concept of “stranded assets” for gas (and oil) is pure speculation, based on predictions of future events.
The “alternatives” could remain more “additional” for much longer than we are told.
This is especially true for natural gas since most foresee only a slight increase (if not a decrease) in the real competition for gas that “environmental groups” inexplicably oppose: non-carbon nuclear power.
While the intense pressure of climate activism on Western majors (e.g. BP, Shell and ExxonMobil) might worry them a lot, it does nothing to reduce demand – only works to cede the market to others .
The majors, largely to satisfy climate pressure, have some 140 billion dollars in transferred assets for sale, but smaller private firms, domestic firms and other investors like hedge funds (“shadow lenders“) are ready to profit – market players who fall under the radar of climate and ESG activism (or who are just impervious to it).
Private equity is the obvious example, where greater freedom of governance has long been seen as an advantage, reaping the ability to make more money without the critical eye of shareholders in SOEs: “The backlash of private equity against ESG. “
Surely they are realizing what we all should: Carbon neutral LNG is just another reason to stay bullish on natural gas.