From the Editor: The IEA calls time on golden age of gas [Gas in Transition]

The International Energy Agency (IEA) declared in its May 2021 Net Zero by 2050 report that, if the world is to continue on a trajectory towards net zero by 2050, no natural gas fields are needed beyond those already under development. No surprise that the forecast was met with criticism from the gas industry, which warned that such messaging would undermine investment in supply and put energy security and affordability at risk.

The 2022 energy crisis was exacerbated to a great extent by the conflict in Ukraine and Russia’s subsequent, unprecedented cuts to pipeline gas supply to Europe. But it was also a crisis that was years in the making – years of global underinvestment in production that resulted in growth of supply being outstripped by that of demand. Past claims by forecasters that the days of soaring gas consumption were over no doubt played a role in this miscalculation.

Global prices have fortunately eased significantly since their record heights last year, though they remain three or more times higher than the decade norm. The market should loosen up around the middle of the decade, thanks to a wave of new LNG supply coming on stream, primarily in the US and Qatar. But the world sees further energy crises further down the line if the main lesson from the current one is not heeded – that there is great risk in underestimating demand growth for gas, given its critical role as a source of baseload energy supply to support the expansion in renewables.

That is a risk that the IEA may have taken in its latest World Energy Outlook and mid-term gas outlook, both published in October, in which it announced that Russia’s invasion of Ukraine effectively heralded the end of the decade-long Golden Age of Gas. This golden age spanning from 2011 until 2021 saw global gas consumption soar by almost a quarter, with gas accounting for 40% of growth in primary energy supply globally – a greater share than any other fuel.

“This rapid growth was underpinned by a number of factors, including the availability of relatively cheap and cost-competitive gas supply, clean air policies in the fast growing markets of the Asia-Pacific region, and the scaling up of shale production in the US,” the IEA explained in its mid-term outlook.

In contrast, the Paris-based agency stated that current high prices meant a slower and more uncertain demand trajectory going forward, with growth almost completely concentrated in Asia, Africa and the Middle East, even as the global market is poised to rebalance over the coming years thanks to increased LNG supply.

The IEA predicts that demand will only rise by 1.6% on average annually in the 2022-2026 period, versus a rate of 2.5% in 2017-2021. Europe, North America and mature markets in the Asia-Pacific region will see demand drop by 1% annually in the medium term, the agency said.

In Europe, “an accelerated deployment of renewables, higher energy efficiency standards and growing electrification in areas such as space heating are set to weigh down on gas consumption.” The continent’s demand will see “structural decline”, dropping by 2026 to 20% below the level reached in 2021. The forecast assumes that more than half of the industrial gas demand lost in 2022 will not be recovered by 2026.

In mature Asia-Pacific markets such as Australia, Japan, Korea, New Zealand and Singapore, the growing availability of nuclear power and increased renewable capacity should reduce the need for gas-fired power, it said, whereas in North America, renewables, higher efficiency standards and the electrification of heating are key factors.

Offsetting this will be primarily growth in China, according to the IEA, with the country set to account for almost half of the increase in global gas demand in the 2022-2026 period.

Further ahead, the IEA predicts in its World Energy Outlook that global demand for natural gas, as well as coal and oil, will peak before 2030 according to the Stated Policies Scenario (STEPS).  It stresses that the end of the growth era for hydrocarbons does not mean an end to investment in them, “but it undercuts the rationale for any increase in spending.”

“Until this year, meeting projected demand in the STEPS implied an increase in oil and gas investment over the course of this decade, but a stronger clean energy outlook and lower projected fossil fuel demand means this is no longer the case,” it stated.

The peril is that if policymakers heed the IEA’s projections, and those projections prove inaccurate, the world may find itself once more in an energy crisis towards the end of the decade. Not only would this mean energy is less secure and affordable, but it may also undermine efforts to curb emissions. After all, high gas prices during the current crisis led some countries to put on hold plans to shut down coal plants, and in some cases, reopen stations that had previously been closed. Underestimating future gas demand might trigger another resurgence in coal use in the years to come.