INSIGHTS FROM AMPHORA
Is natural gas a transition energy or not?
In the past decade, there was a tacit acceptance that two energy sources would be required to help the world economy transition from carbon-based fuels to a renewable pathway – nuclear and natural gas. This month’s article explores the question concerning natural gas and how it figures in our step towards a lower carbon economy.
For many the report published by the IEA in May was a bombshell. The world will fall short of bringing energy related carbon dioxide emissions to net zero by 2050. The bombshell part related to our natural gas production.
"Beyond projects already committed as of 2021, there are no new oil and gas fields approved for development in our pathway, and no new coal mines or mine extensions are required,” the report goes further.
“The unwavering policy focus on climate change in the net zero pathway results in a sharp decline in fossil fuel demand, meaning that the focus for oil and gas producers switches entirely to output — and emissions reductions — from the operation of existing assets."
The IEA focuses on the target for the world to reach the goal and limit the global warming temperature rise to 1.5 degrees Celsius, setting out 400 milestones in its roadmap to net-zero by 2050. The landmark publication has many detractors who have somewhat missed the point of the roadmap – its purpose was to highlight the sheer scale of the challenge and a practically endless list of changes that need to be made. More on this below…
So where does that leave natural gas ?
Bottom line, the report has taken a consensus on gas consumption rising and said we need to slash these figures. On current projections, there is steady rise by 2030 of just under 4 trillion cubic metres. In February 2021, McKinsey predicted a 6% increase in gas demand by 2050.
See McKinsey Global Outlook →
Yet the IEA report in May, aiming for a tougher 1.5 degrees Celsius temperature limit, places demand by then should actually be just 1.75 trillion cubic metres - a ~60% drop from 2030.
How did we get to a point which radically alters the world’s consumption pathway and why is natural gas targeted in such a way ?
Firstly let’s briefly explore why natural gas is considered by many as a vital transition or bridge fuel for energy generation. It is beyond the scope of this article to consider other major emitters (Transport, Industry and Agriculture). The table below provides an illustration of the savings of CO2 by burning natural gas versus other fossil fuel. As a rough rule of thumb natural gas at the burning phase produces roughly 50% of the equivalent CO2 from the combustion of coal.
Conventional wisdom dictates that in order to make the huge leap to a lower carbon economy, natural gas plays a vital part in the energy mix.
Arguments against the role of natural gas as a bridge fuel are not new. In fact, scientific papers have been in abundance for a decade or more.
Most prominent of the detractors cite the simple truth that Natural gas is still a fossil fuel. Any new fossil fuel burning is adding CO2 to the atmosphere and should be avoided. This chimes well with the IEA report as there is a clear line drawn in the sand.
The second argument in favour of the IEA divestment strategy focuses on the assumption that natural gas offer lower emissions from other sources. Methane, the primary component of the mix known as natural gas, is on a 20-year timescale, is roughly 90 times more effective at trapping heat in the atmosphere than a molecule of carbon dioxide. Loss to atmosphere – leaks – are an everyday occurrence during the production of any hydrocarbon. Even a solid fuel such as coal emits methane on production and storage (see Box 1).
Losses, or the control of natural gas loss during production, is therefore far more critical than we presumed. If there are very few leaks or losses along the way—less than one percent of the total amount of gas recovered—the argument that natural gas is cleaner than other fuels remain true.
But if the “leakage rate” climbs over more than about 1 percent of the total gas recovered, the budget gets fuzzy, says Robert Howarth, a climate scientist at Cornell.
One recent study published by Science found that the widely used “leakage rate” of gas in the U.S. natural gas production process could be over 2 percent. This is a deep rabbit hole of a topic and draws into question everything from atmospheric variation to the accuracy of the standard test equipment.
The prominence of energy loss is now squarely in the public domain. We can see the beginning of a new age of trade economics emerging where a mass balance approach to carbon emissions + methane loss becomes the norm.
A well-publicised event last year occurred when Engie of France was told by its national government to hold off signing a multi-billion dollar term deal with US producers. The government cited environmental implications, namely the release of methane during the production phase through shale deposits. Dismissed as political posturing at the time, the deal was indeed never signed – the provenance of natural gas is now a very real topic.
(Our next edition will explore the alternatives to energy production and throw out some very big investment numbers).
In a market with price fluctuations and oversupply, it is challenging to maintain revenues and manage credit risk management. A single view of the commodity supply chain is vital.
Amphora is a unique provider in today's LNG marketplace. We offer CTRM and Shipping services under one roof, allowing LNG clients to go to market quicker and for significantly lower cost. In October 2020 Amphora set up a strategic partnership with nGenue, the market leader in Natural Gas ETRM and retail operations software. For more information, please visit amphora.net.
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