IEA sees natural gas peaking by 2030
Driven by a global energy crisis of “unprecedented breadth and complexity”, the Paris-based International Energy Agency (IEA) delivered its flagship World Energy Outlook 2022 (WEO) on October 27 which sees natural gas demand reaching a plateau by the end of this decade.
Russia’s invasion of Ukraine in February has driven a stake into global energy markets, particularly for natural gas, the WEO says. Russia was by far the largest exporter of fossil fuels to Europe; its actions since the invasion have ruptured virtually all its trade ties with Europe, and in no scenario does the IEA see its fossil fuel exports returning to levels seen in 2021.
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“In the longer term, one of the effects of Russia’s recent actions is that the era of rapid growth in gas demand draws to a close,” the report says. “In the Stated Policies Scenario, the scenario that sees the highest gas use, global demand rises by less than 5% between 2021 and 2030 and then remains flat through to 2050.”
Demand growth for gas in developing economies, particularly in Asia, has slowed, the WEO says, “putting a dent in the credentials of gas as a transition fuel.”
Natural gas has traditionally been seen as a reliable component of the clean energy transition, with its ability to step in to fill the gap left by declining coal and oil and to provide stability to support the intermittency of renewables.
“These are currently being tested by the global repercussions of Russia’s actions in Europe,” the WEO says. “In the midst of a global energy crisis, fundamental questions are now being asked about natural gas: how can supply be assured, now and in the future, and at what price?”
In the WEO’s most likely scenario, the Stated Policies Scenario (STEPS), natural gas demand rises by less than 5% between 2021 and 2030, compared with a rise of 20% between 2011 and 2020, and remains flat at about 4,400bn m3through 2050. In the more aggressive Announced Pledges Scenario (APS) and Net Zero Emissions (NZE) Scenario, gas demand peaks “soon” and falls by 10% by 2030 in the case of APS and by 20% in the NZE scenario.
By 2050, WEO 2022 sees global natural gas demand in STEPS some 750bn m3lower than forecasts in WEO 2021, with half the downward revision attributed to rapid moves away from unabated natural gas consumption in advanced economies.
“The United States alone accounts for one‐third of the total downward revision: its recent Inflation Reduction Act is set to speed up the deployment of renewables in the power sector and to provide stronger support for efficiency and heat pumps in buildings,” the report says. “The other major downward revision comes from price‐sensitive emerging market and developing economies, where high natural gas prices mean that prospects for coal‐to‐gas switching are now more muted.”
On the LNG side of the equation, the IEA sees demand growth until the middle of this decade, as Europe and parts of Asia seek non-Russian supplies. But in the latter half the decade, there are “sharp divergences” depending on the scenario.
In STEPS, an additional 240bn m3/year of export capacity is needed by 2050, over and above projects already under construction. APS sees only projects already under construction actually contributing to supply, while NZE – characterised by a sharp decline global gas demand – suggests that even projects being built now may not be needed.
“This highlights a key dilemma for investors considering large, capital‐intensive LNG projects: how to reconcile strong near‐term demand growth with uncertain but possibly declining longer term demand.”