Editorial: EIA Outlook Highlights Growing Energy Policy Gap [LNG Condensed]

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Volume 1, Issue 9 - September 2019

In this Issue: 

Editorial: EIA outlook highlights growing energy policy gap

Shipping futures: is LNG the fuel of choice?

South Korean LNG: feast or famine?

Australia top dog - for now at least

Country Focus: Brazil locking in LNG demand

Project Spotlight: Calcasieu Pass

Technology: China eyes the LNGC Market

 and more!   

LNG Condensed brings you independent analysis of the LNG world's rapidly evolving markets. 

Covering the length of the LNG value chain and the breadth of this global industry, it will inform, provoke and enrich your decision making.  Published monthly, LNG Condensed provides original content  on industry developments by the leading editorial team from Natural Gas World.

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The US Energy Information Administration published its International Energy Outlook 2019 on September 24. The reference case projects nearly 50% growth in overall energy consumption by 2050, driven by demand growth in non-OECD Asian countries, particularly India. Energy demand in non-OECD Asia, which includes China and India, is expected to almost double by 2050.

There are three big themes to note. First is the big shift in end-use consumption towards electricity led by a rise in residential and commercial power demand in non-OECD Asia. Second is the degree to which a rapid expansion in renewable energy sources is still insufficient to meet new energy demand in non-OECD countries, meaning that demand for fossil fuels continues to grow. Non-OECD growth outweighs OECD contraction causing substantial changes in energy trade flows. 

Third is that the outcome of the reference scenario is not compatible with the Paris Agreement on Climate Change. The EIA estimates that energy-related carbon dioxide emissions will rise from 35,319mn mt in 2018 to 43,085mn mt by 2050, an annual average increase of 0.6%. This last point is critical because it means policy continuity is not a useful forecasting assumption.

GROWTH IN ELECTRICITY USE

The fastest growing source of electricity generation is renewables, including hydropower, although it is wind and solar that contribute the majority of growth. Generation from renewable energy sources is forecast to expand by an average 3.6% a year, surpassing coal as the primary source of electricity generation in 2025 and accounting for almost half of total world electricity generation by 2050.

In OECD countries electricity demand is forecast to grow at 1.0% a year on average. This is met primarily by renewables, which also displace some existing nonrenewable generation. However, in the non-OECD, where electricity demand grows at more than twice the OECD rate (2.3%/yr), electricity demand will be met by a mix of renewables and non-renewable generating technologies.

Coal’s share of electricity generation falls overall, but coal use persists in China and grows in India, which is not good news for greenhouse gas (GHG) emissions. In 2050, China is still consuming 3.5bn short tons of coal, while India’s annual coal use grows from 1.1bn st in 2018 to 2.9bn st.

LNG PROSPECTS FORMIDABLE

Natural gas is the fastest growing of the fossil fuels, with demand rising by more than 40% from 2018 to 2050, while non-OECD countries see gas use jump 70%. Non- OECD Asia – countries with the largest and fastest-growing dependencies on LNG -- account for most of the growth in natural gas consumption.

The EIA sees an ever widening gap between Asian natural gas consumption and production. Net imports of natural gas to Asia more than triple from 2018-2050.

A big question for the LNG market is what proportion of this demand will be met by LNG as oppose to pipeline gas? The EIA writes: “Despite strong growth in LNG trade, pipeline flows continue to account for most of the interregional natural gas trade during the projection period as pipeline infrastructure is further developed.”

POLICY DISRUPTION

Long-term forecasts portray direction and an idea of the degree of change, but small differences to assumptions made about fertility rates, economic growth and energy intensity can all result in large changes to final outcomes.

The issue of climate change creates an environment in which disruptive technology is sought and encouraged and in which policy interventions must be more decisive and meaningful. By highlighting the huge gap between the world’s current trajectory and what needs to be done to limit the rise in GHG emissions, as outlined by bodies such as the Intergovernmental Panel on Climate Change, the EIA report, alongside other long-term forecasts, invite policy change.

Whether successful or not, a new raft of policies affecting emissions and energy use for industry, power generation, transport and other sectors of the economy seems certain in both OECD and non-OECD countries. In particular, action to address the growth of new coalfired generation and reduce the lifetimes of existing stock appears a necessity. The difficulty is that this increases the already large demands made on renewable and low carbon energy sources.

Nonetheless, policy change is a much more likely scenario that policy continuity.