The world’s major oil companies – under pressure from faltering demand for oil and coal – are investing heavily in natural gas. Since 2008 in the US, natural gas supplies have increased by 35 per cent, while prices plummeted more than 60 per cent over the same period.
The lesser of three evils
Historically, natural gas was the weakest of the three primary fossil fuels. While its proved reserves were higher than coal, it was difficult and expensive to transport, leading countries like Turkmenistan and Iran to leave vast quantities untapped. This drove up prices and made it an unviable energy resource.
The US shale gas industry boom transformed the natural gas industry. Liquefied Natural Gas (LNG) importing and exporting became feasible, with exporting capacity predicted to quadruple by 2019. Demand for LNG was also driven by natural gas’ versatility; useful as both a source of energy and a building block for industrial chemicals (such as in the manufacture of plastics). Crucially, in an increasingly environmentally aware world, natural gas emits the least carbon of the three fossil fuels, making it an important stepping stone towards renewable energy.
From 2007, natural gas’ proportion of major oil companies’ energy output grew by 11 per cent. However, future growth predictions suggest a less certain future.
In the recent International Energy Outlook 2017 report, projected gas consumption growth fell from 2.1 to 1.7 per cent between 2020 and 2040. This decrease is equivalent to the entire US natural gas market disappearing. The projected demand cuts occur primarily in Asia, which accounts for half the expected growth between 2020 and 2040.
While diminished, natural gas production would still see a significant rise, stemming from a low-cost resource base and large untapped supplies. The results of the resource’s expansion are already evident; in the US, natural gas is now the main source of electricity, where increased dependency on the less polluting resource has cut CO2 emissions by 30 per cent.
Whether natural gas will continue its steady growth or begin to see a similar demand glut as oil and coal will depend on pricing.
The nature of price
Natural gas is traditionally priced relative to other fuels. Currently it must compete with coal and, increasingly, renewable power.
A report from the World Energy Council found renewable-power would see large drops in costs in future. Asian natural gas prices would have to undercut Australian, Qatari and US LNG cargoes to remain competitive, making continued investment in the resource less attractive.
However, low prices relative to renewables are allowing investors to build infrastructure like power plants and import terminals. Having this infrastructure already in place could positively shape demand for natural gas. Plants running on gas can also respond to changes in energy demand, which renewable projects cannot. As a result, a combination of renewable and natural gas resources could become a vital part of Asia’s future energy mix.
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