Click on Google Earth, pick nearly any continent and zoom in, and you’ll find evidence of the natural gas industry hard at work meeting the growing global demand for clean, reliable, affordable energy and paving the way to a net zero future.
For example, look at Tema, Ghana, where West Africa’s first liquefied natural gas import terminal was on track to receive its initial deliveries in the second quarter this year—a game-changer for residential, commercial and industrial customers plagued by unreliable and higher-polluting energy sources.
Or Kipoi, in northern Greece, the interconnection point for the new 546-mile Trans-Adriatic Pipeline, which delivered the first Azerbaijan natural gas to southern Italy in December 2020 as part of Europe’s strategy for diversifying its energy portfolio and meeting environmental commitments.
Or Kitimat, in northern British Columbia, where LNG Canada is three years into construction of the country’s first LNG export terminal, which will supply natural gas to meet growing demand in Asian markets, including China, Korea and Japan.
All three projects reflect a bullish outlook for an industry that appears poised for continued growth despite COVID-19-related setbacks and calls in some areas to reduce natural gas usage.
How much and how fast global demand grows will depend on many factors, including the speed and strength of the recovery from COVID-19 and, long term, whether policymakers choose a path to net zero that acknowledges the vital role of natural gas in a resilient, reliable and affordable energy system.
“Gas and the gas industry, both through ensuring continued energy supply and resuming investment in major projects, will support a healthy economic recovery,” said Joe Kang, president of the International Gas Union, which has more than 160 members on five continents representing 95% of the global gas market. “Longer term, gas—be it natural gas, renewable gases or hydrogen—will play a vital role in delivering reliable, affordable and sustainable energy to billions of people around the world for decades to come.”
Driven by increasing demand in fast-growing markets including Asia, the Middle East and the Russian Federation, global demand for natural gas is expected to rise 3.2% this year, according to estimates from the Global Energy Review published in April by the International Energy Agency.
Natural gas demand fell by 75 billion cubic meters, or 1.9% year-over-year, in 2020, the largest decline ever in absolute terms, and in relative terms similar to the impact of the global financial crisis in 2009, according to the IEA.
In the U.S., the largest market for natural gas, growth in demand in 2021 is expected to make up about 20% of the 20 bcm decline last year, yet demand might not return to pre-pandemic levels until at least 2022.
Still, the IEA’s forecast would put 2021 demand for natural gas more than 1% above 2019 levels. While that may not sound impressive, consider that demand for both coal and oil are expected to remain well below pre-COVID-19 levels this year.
That contrast highlights the fact that natural gas demand didn’t fall as far as demand for coal and oil did. In fact, due to low natural gas prices and an uptick in fuel-switching, demand for natural gas for the power generation sector actually increased 2% year-over-year in 2020, even as demand for electricity declined.
Looking further out, projected population growth and the role of natural gas in replacing high-intensity fuels in many regions underpin the case for continued long-term demand growth in tandem with the rise of renewables and other low-carbon strategies.
“We can’t be blind to the fact that by 2050, we’ll have 2.5 billion more people on this planet,” said Andrea Stegher, a senior vice president for Milan-based SNAM, Italy’s largest natural gas infrastructure player, and IGU regional coordinator for Europe. “I really don’t think we can afford to leave any option untapped.”
McKinsey’s Global Energy Perspective 2021 report calls for global demand for natural gas to grow at an average rate of 0.9% per year from 2020 to 2035, peaking in 2037, then decline by an average of 0.4% per year from 2035 to 2050. Natural gas is the only fossil fuel expected to experience any growth in demand beyond 2030.
Meanwhile, a major regional shift in demand is underway as moderating demand in advanced economies is offset by growing needs in Asia, Africa, the Middle East and Latin America. Just as the accelerating energy transition will require advanced economies to more rapidly reduce their use of natural gas, it will also lead to higher demand in countries that are working to curb or eliminate their reliance on coal and other high-intensity fuels.
Leading the way will be China, which has committed to net zero by 2060, and India. Demand for natural gas from both countries combined is expected to double by 2040 to satisfy the needs of growing populations, replace coal and supplement domestic gas production.
Similarly, in Europe, where some of the most aggressive carbon reduction goals have been implemented, demand for natural gas imported via pipeline, along with imported LNG and natural gas from new sources like the Trans-Adriatic Pipeline, will increase as part of the effort to replace coal in Germany and pockets of southern Europe.
One of the beneficiaries of increasing demand in both Asia and Europe will be Russia, No. 1 in natural gas exports and reserves, said Marcel Kramer, president of Amsterdam-based energy business school Energy Delta Institute and the IGU’s regional coordinator for Russia, the Black Sea and Caspian Sea. Kramer sees robust demand for Russian gas from Europe and China, particularly as Russia takes steps to reduce emissions at the point of production and along its transmission networks.
In Latin America, several regional “game changers” are set to boost demand for natural gas, increase supply and improve price competitiveness, Gabriela Aguilar, vice president for South America for Excelerate Energy, told an IGU audience in April. Brazil’s recent move to restructure the nation’s gas market—long monopolized by Petrobras—is expected to inject more competition from LNG, spur foreign investment and reduce natural gas prices by as much as 40% by some estimates.
In Chile, the government’s plan to decarbonize its coal-dependent energy sector, which accounts for 78% of the country’s greenhouse gas emissions, likewise is expected to spur natural gas demand as Chile seeks to phase out the use of coal for power generation by 2040.
And in Argentina, development of the Vaca Muerta Shale gas region—which in terms of size is comparable to the Eagle Ford Shale play in Texas—promises to unlock new supplies that will keep natural gas prices competitive and demand on the upswing.
In Egypt and across Africa, demand for natural gas is surging for use in power generation, gas mobility and industrial applications, and to serve residential consumers eager to replace bottled liquefied petroleum gas and, in some cases, wood and dung used as cooking fuel, said Khaled AbuBakr, executive chairman of Egypt’s largest natural gas distributor, Cairo-based TAQA Arabia, and the IGU’s regional coordinator for Africa and the Middle East.
With nearly 1.4 million natural gas customers in North Africa, TAQA is connecting some 150,000 new customers per year, in addition to 10 million existing customers in Egypt, according to AbuBakr, who also serves as chairman of the Egyptian Gas Association. TAQA is also converting both private vehicles and commercial trucks to compressed natural gas and is building its renewables portfolio, including Benban, the world’s largest solar park, about 400 miles south of Cairo.
AbuBakr bristles at the idea of curbing natural gas use in developing countries where indoor pollution from dirty fuels is a major health risk.
“You’re talking about replacing cooking fuels like wood and dung,” AbuBakr said. “How do you tell people they can’t have natural gas?”
In Canada, where the federal government has pursued aggressive emission-reduction goals for several years, natural gas is expected to be the largest energy end use in the country before 2040, said Timothy M. Egan, president and CEO of the Canadian Gas Association.
One key factor driving optimism about demand for natural gas is the continued buildout of LNG infrastructure, which has brought not only new supplies of natural gas to areas difficult to serve via pipelines, but also healthy global competition that has helped keep prices low for consumers.
“We all grew up thinking of natural gas markets as regional, but more and more we’re looking at a global market, with LNG being the new oil,” said SNAM’s Stegher.
Following a 13% jump in LNG trade in 2019, the liquefied fuel took less of a hit in 2020, and demand is expected to grow rapidly. In late April 2021, Houston-based energy services giant Baker Hughes Co. revised upward its long-term demand forecast for LNG to 600–650 million metric tons per year by 2030, from an earlier prediction of 550–600 mmt/y. The new forecast reflects LNG’s relatively strong 2020 performance and the accelerated transition to cleaner sources of energy being mandated by governments around the world.
“The fact is, [the natural gas industry] will be a greater enabler of the energy transition, both through switching from coal to gas in power generation, greater use of gas as a transport fuel, and gas supporting the integration of intermittent renewables into the energy mix.”
—Joe Kang, president, International Gas Union
The number of new LNG project announcements hit a record in 2019, and it includes more than just major facilities like LNG Canada’s Kitimat terminal. One of the most exciting natural gas stories today is the proliferation of small- and mid-scale LNG projects—including regasification plants and truck-loading facilities—designed to bring natural gas to regions that were previously served only by pipelines or that had no access to natural gas at all.
Such facilities are being built with an eye toward flexibility and growth. The import terminal at Tema, for example, features a floating storage unit that can be expanded as needed, and it has truck-loading facilities so LNG can be transported overland to communities for direct use and as fuel for local “microgen” power generation grids. The ultimate goal is to expand LNG service to neighbors on the West African coast, including Benin, Cote d’Ivoire, Guinea, Sierra Leone and Liberia.
In addition to continued fuel-switching to lower-carbon natural gas and an increase in small-scale LNG projects to open up new pockets of demand, experts say LNG demand also will be driven by expanding use as a fuel in marine transportation—LNG bunkering—and in other hard-to-abate sectors such as steel, chemicals and heavy transportation.
Excelerate Energy’s Aguilar points to the economic and environmental benefits LNG has brought to Argentina since the first LNG receiving terminal was built at Bahía Blanca in 2008 as an example of what LNG can do for smaller Latin American markets. Replacing liquid fuels with cleaner, lower-cost natural gas saved Argentina’s consumers more than $12 billion between 2008 and 2019 and cut carbon dioxide emissions by 7.7 million tons between 2016 and 2019.
Industry players around the world are working to position natural gas as a leader in innovative solutions that help build a lower-carbon energy future.
In Canada, the CGA’s Egan says his members are bringing more renewable natural gas or biogas to market as they also move forward with plans to produce hydrogen from natural gas. The CGA has launched an innovation fund with both grant and equity investment opportunities that so far has invested in more than 50 energy technology startups.
Record electrolyzer capacity was added worldwide in 2019, with Europe and China in the forefront, as government and industry set the stage for large-scale production of carbon-neutral “green” hydrogen, which will be produced through electrolysis using renewable energy sources, including wind and solar power.
But this holy grail of renewable gases may be more than a decade away from commercial viability. Meanwhile, natural gas industry advocates are positioning “blue” hydrogen, produced from natural gas through steam methanation, as a pragmatic route to a cleaner energy portfolio, at least until green hydrogen becomes widely available and cost competitive.
In Italy, Stegher’s company is currently testing natural gas and hydrogen blends in pilot projects, the first of which was in partnership with a pasta manufacturer. SNAM and its partners own more than 42,000 kilometers of pipeline in Europe and envision a future when hydrogen gas is flowing through their system—especially relying on solar energy harnessed from the Mediterranean and North Africa. SNAM estimates that hydrogen and renewable gas could supply around 20% of Italy’s gas needs by 2040.
Kramer, the IGU regional coordinator, believes it will be sometime after 2030 before significant amounts of green hydrogen will be in use, a timeline consistent with the IEA’s forecast.
“In the phase leading to a measurable percentage of green hydrogen coming to market, the availability of blue hydrogen from natural gas can really help, in terms of the [lower-carbon] fuel itself and certainly also in terms of the infrastructure that has been created in much of Europe.”
—Marcel Kramer, president, Energy Delta Institute, and IGU regional coordinator
“Blue hydrogen is well within reach and is relatively easier and faster to realize than the green hydrogen that many think we should strive for,” Kramer said. “In the phase leading to a measurable percentage of green hydrogen coming to market, the availability of blue hydrogen from natural gas can really help, in terms of the [lower-carbon] fuel itself and certainly also in terms of the infrastructure that has been created in much of Europe.”
Meanwhile, the industry continues work on producing lower-carbon natural gas, including RNG, and reducing the carbon footprint of natural gas by containing methane emissions that occur during production, transmission and distribution. LNG Canada CEO Peter Zebedee is quick to point out that the emissions intensity of LNG shipped from Kitimat will be 35% less than top-performing LNG facilities elsewhere, thanks to emissions controls along the pipeline and other factors.
The wild card in the long-term global outlook, of course, is the role the natural gas industry will have in helping meet the ultimate goal of reducing global warming.
Industry advocates are continuing to press the merits of natural gas as a key tool to reach net zero and a critical component of a resilient energy system. Still, industry leaders from SNAM’s Stegher to TAQA’s AbuBakr agree with the CGA’s Egan, who believes the industry is “on our heels in the public policy discourse” and needs to do a better job of telling its story.
Egan and the IGU’s Kang point to the California blackouts and failure of the Texas electric grid last winter as reminders of the need for resilience—and an ominous portent of things to come if policymakers opt for all-electric pathways to net zero.
“Our industry must do more to inject balance into that debate,” Kang said. “The fact is, we will be a greater enabler of the energy transition, both through switching from coal to gas in power generation, greater use of gas as a transport fuel, and gas supporting the integration of intermittent renewables into the energy mix. We urge policymakers to accept that a clean, secure and affordable energy future requires electrons, molecules and infrastructure.”