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    Prospects for Gas Vary Greatly on Policies: IEA


Gas will fare better than oil and coal in the coming decades, but demand will depend greatly on policy.

by: Joe Murphy

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Prospects for Gas Vary Greatly on Policies: IEA

Global gas demand will fare better than oil and coal over the coming decades, but consumption levels will depend greatly on what energy policies are adopted, the IEA has said in its World Energy Outlook 2020 published on October 13.

Forecasting energy is a significant challenge this year, the IEA said, after what it described as the biggest collapse in demand since "the World Wars and the Great Depression." The IEA's forecasts are therefore based on two main scenarios. The first, Stated Policies Scenario (Steps), assumes that Covid-19 is brought under control in 2021 and the global economy recovers to pre-crisis levels that year, while another, Delayed Recovery Scenario (SDS), assumes that the global economy does not reach its pre-crisis size until 2023. Both reflect today's announced policy intentions and targets.

IEA expects gas demand to fall by 3% in 2020, marking the biggest annual drop in demand since it became a major fuel in the 1930s. But gas has been more resilient to the impact of the pandemic than coal and oil.  Under Steps, consumption will grow by 15% by 2030 and 30% by 2040, supported by gains in south and east Asia. Growth will be driven in these regions by countries looking to improve air quality and support manufacturing development

"However, gas faces significant uncertainty as these economies emerge from the Covid-19 crisis," the IEA said. "Despite a lower price outlook, growth prospects for gas continue to rely heavily on policy support in the form of air quality regulations or other restrictions on the use of more polluting fuels, and on significant investment in new gas infrastructure – around $70bn each year in Steps."

A weaker macroeconomic outlook could limit capital available to major gas consumers, making it harder to fund this infrastructure. Furthermore, this marks the IEA's first outlook which sees gas demand declining by 2040 in advanced economies. Gas will face competition in more established markets from increasingly cost-competitive renewables, the agency said, and in the EU, demand will never return to the pre-pandemic level, despite coal and nuclear power plants getting retired. EU consumption is expected to fall 8% by 2030.

Under DRS, gas demand does not recover to the 2019 level until 2024, as a result of lower electricity consumption and subdued industrial activity. Export-oriented gas producers will come under significant strain from low prices, and "a delayed recovery also casts a long shadow over the economics of already sanctioned gas projects expected to come online in the next few years," the IEA said.

Revenue shortfalls will limit what extra infrastructure is developed in Asia. Global consumption will rise by only 24% by 2040 under this scenario.

Under a third, Sustainable Development Scenario (SDS), which envisages a surge in clean energy policies and investment that puts the world on track to meet Paris Agreement goals, gas demand will peak before 2025 and fall back to the pre-pandemic level by 2030.