ACCORDING to Shell’s LNG Outlook 2020, published on 20 February, global demand for LNG is to double to 700 m t/y by 2040, as natural gas plays a growing role in shaping a lower-carbon energy system.
Natural gas emits 45–55% fewer greenhouse gases (GHGs) and less than one-tenth of the air pollutants as compared to coal, when used for energy generation. This, Shell says, is why it believes that gas has a major role to play in particularly hard-to-electrify sectors, such as transport and industry.
Projections to 2040 show that natural gas and LNG are to play an increasing role in the energy system, says LNG Outlook 2020.
Estimates forecast that by 2040 gas will be used to meet 43% of the increase in global energy demand. According to the Outlook, energy demand in 2019 was about 16,000bn m3 and in 2040 it is expected to reach about 19,000bn m3. A further 37% of demand will be met by renewable sources.
More than half the growth in natural gas is expected to come from non-power sectors, such as industry, residential, commercial, and transport as more carbon-intensive options are replaced, says the Outlook.
Additionally, it states that LNG is to continue as the fastest growing gas supply source with an expected compound annual growth rate (CAGR) of 4% between now and 2040. Asia is expected to absorb more than 70% of this growth.
In 2019, global LNG demand grew by 12.5% to 359m t, bolstering its role in the low-carbon energy transition, according to Shell. An industry record of 40m t of additional LNG supply became available and was consumed by the market.
Europe absorbed 90% of the LNG supply growth in 2019. Its imports increased by 74% “as competitively-priced LNG furthered coal-to-gas switching in the power sector, replacing declining domestic gas production and pipeline imports”.
Asia experienced a modest rise in imports compared to the previous two years, due to mild weather and increasing nuclear electricity generation in Japan and South Korea, according to Shell. The countries are two of the world’s three largest LNG importers. In 2019, they imported 77m t/y (Japan) and 41m t/y (South Korea) of LNG.
Another key development in 2019 which Shell highlighted is the record investment decisions. The year saw announcements of some 71m t of new liquefaction capacity. The surge is expected to help meet cross-sector LNG demand growth.
About 40% of the new projects are to be in the US, which according to the Outlook is the world’s fastest growing LNG exporter. In 2019, the US exported 37m t/y of LNG, and exports are expected to reach 154m t/y by 2040.
Further 2019 developments highlighted by LNG Outlook 2020 include an increase in the diversity of contractual structures, providing a wider range of options to LNG buyers. New-spot trading mechanisms and a wider variety of indices were used for long-term contracts. The more liquid and transparent global market LNG indicates that the fuel is becoming an increasingly flexible commodity, says the Outlook.
Additionally, in 2019, coal generation phase-out announcements more than trebled, demonstrating the growing role of gas in improving air quality through coal-to-gas switching in the power and industrial sectors, says Shell. According to LNG Outlook 2020, over the last nine years coal-to-gas energy switching has saved around 600m t of carbon dioxide, globally.
Maarten Wetselaar, Integrated Gas and New Energies Director at Shell, said: “The global LNG market continued to evolve in 2019 with demand increasing for LNG and natural gas in power and non-power sectors.”
“Record supply investments will meet people’s growing need for the most flexible and cleanest-burning fossil fuel.”
“While we see weak market conditions today due to record new supply coming in, two successive mild winters and the Coronavirus situation, we expect equilibrium to return, driven by a combination of continued demand growth and reduction in new supply coming on-stream until the mid-2020s.”
To achieve its Net Carbon Footprint ambitions, Shell is changing its energy portfolio, including by selling more natural gas compared to oil. As part of the ambition, Shell aims to reduce emissions over the lifecycle of its products by around 20% by 2035 and around 50% by 2050, on average with each unit of energy it sells.
According to Wetselaar, “natural gas is a critical part of the energy transition, helping to meet increasing demand while lowering greenhouse gases emissions by displacing thermal coal”.
However, environmental organisation Greenpeace has called the choice between gas and coal “a false choice between two bad options that ignores the environmental and economic benefits of renewable energy like wind and solar”. Methane is the main component of natural gas and though it breaks down more quickly than carbon dioxide it is a more potent GHG. Methane leaks from the extraction, processing, and burning of natural gas can significantly increase GHG emissions from the sector.
Shell notes that its forecasts are based on third-party data.
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