From the editor: Stalled coal-to-gas switching is bad news for emissions [Gas In Transition]

Regardless of sanctions, Russian oil and coal are likely to find markets, most likely in Asia, but gas is far more limited by infrastructure. A reorientation of Russian exports to Asia is simply not possible in the short term because neither the gas pipelines nor LNG capacity to do so exist.

For Europe, turning to other pipeline gas suppliers -- Norway, Algeria, Libya and Azerbaijan -- and to the LNG market can only deliver so much. These suppliers have only limited short-term production elasticity, effectively governed by upstream capacities.

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Liquefaction plants can ramp up production to peak capacity, but this cannot be maintained indefinitely. It takes four to five years to bring major new LNG capacity onstream, often longer, depending on where the new capacity is located and the degree of project readiness.

European efforts to reduce their imports of Russian gas mean that fuel will be locked in the ground, creating a fundamental loss of supply, followed by shortages.

Gas flows changing

Europe is already drawing LNG cargoes away from the Pacific basin and high prices have seen a withdrawal of spot interest from Asian buyers. Some forecasters now predict zero growth in Chinese LNG imports this year, while Indian LNG imports slumped in the fourth quarter of 2021 and the first quarter of 2022. In the absence of cheap gas, China and India will have little choice but to burn coal.

This is not simply the result of Russia’s invasion of Ukraine.

LNG spot prices hit a record high back in October 2021 amid strong Asian winter buying and Europe entering the cold season with extremely low levels of gas stocks. The disruption to Russian gas supplies comes on top of an LNG market already struggling to meet seasonal variations in demand. Its capacity to do so now, in the wake of Russia’s aggression, is even more limited.

Coal still the primary back-stop

How countries respond to high gas prices in the short term depends on their immediate alternatives and for a large part of the world this still means coal, which, in 2020, provided about 27% of the world’s primary energy supply. The International Energy Agency’s review of CO₂ emissions in 2021 showed that the post-COVID recovery was dirty; global energy-related CO₂ emissions reached their highest-ever level, despite a record year for renewables. Even in the EU, where coal phase outs are most advanced, emissions from coal-fired generation rose by 16%. In the US, where one of the most effective weapons in the war on coal has been cheap shale gas, emissions from coal-fired generation jumped 17%.

Just as spot LNG prices were hitting record highs months before Russia’s invasion of Ukraine, the world had already turned back to coal to power the post-pandemic recovery.

Economic growth and emissions

The most fundamental reductions in global greenhouse gas (GHG) emissions have come from major economic downturns, two of which book-ended the 2010s – the aftermath of the global financial crisis in 2008/09 and the Covid-19 pandemic at the end.

These dislocations in effect provided time to reorder energy systems to make them more sustainable, but it seems not enough time.

The recoveries from these traumatic events have been carbon intensive because of a lack of renewable energy capacity and the pre-commercial nature of many energy transition technologies. But they have also been carbon intensive because of a lack of gas to displace coal use, a situation made worse by Russia’s invasion of Ukraine.

A heady combination of factors -- rising energy costs, broader inflation and continued disruption to global supply chains from war in Europe and resurgent Chinese lockdowns -- appear sufficient to tip the world economy into recession in the early 2020s.

This would again limit global GHG emissions and provide a chance to expand renewable energy capacities, albeit at significant cost for the poorest and most vulnerable.

There is every reason on environmental, security of supply and cost grounds to maximise renewable energy generation. Investing in clean energy sources and energy transition technologies is the best way of simultaneously boosting economic growth and reducing its carbon intensity.

But in a world still sourcing a large majority of its energy from fossil fuels, limitations on the availability of the least polluting of those fuels implies falling back on more carbon-heavy fuels in the short and medium term. Rising GHG emissions will be the result, reducing the world’s already insufficient progress towards a net zero carbon future.

Supporting gas

A renewed focus on domestic gas production and the opportunities presented by producing gas for export appears to many environmental organisations as a regressive step.

However, the two processes – investment in gas and renewables – are complementary because the primary enemy is coal followed by oil; when growth resumes, it will be more sustainable because more of the energy required will be generated from clean energy sources and the remainder will be sourced more from gas.

The risk presented by high gas prices is that coal-to-gas switching stalls in China and India in particular, but also in the developing world more broadly. If limited to a choice between carbon-intensive growth and no growth, countries will choose the former.

This is not an argument in favour of recession, but one of maximising clean energy sources and the least polluting fossil fuel mix in order, eventually, to achieve sustainable economic growth. That means gas rather than coal becoming the back-stop when energy demand rises fast.