Gas stays critical to decarbonizing global energy system: GGR 2022
Gas is vital to secure decarbonization of the global energy system, and to curb emissions, which have been on an upward trend since 2020, especially in the power generation sector, exacerbated by the post-pandemic upsurge in power demand and increased coal emissions due to gas-to-coal switching, according to the Global Gas Report 2022 released May 25.
This switching is the result of high gas prices outpacing coal prices, heightened by the 2021-2022 global energy supply tightness and the 2022 Russia-Ukraine conflict.
To reverse the gas-to-coal switching phenomenon, energy demand-supply will need to be rebalanced, the report which was released by the International Gas Union, or IGU, Snam and Rystad Energy to coincide with the World Gas Conference 2022 in Daegu, South Korea, said.
In a statement released on the same day, they said that the Russia-Ukraine conflict has brought the issue of energy security to the forefront and highlighted the value of diversifying supply.
Extreme weather over the past two years has also put energy security to the test, but during this time natural gas has proven to be a reliable source of electricity generation that can offset shortfalls from other sources, they said. With its low carbon profile, natural gas can achieve immediate cuts in emissions.
"Today, blue and green hydrogen account for less than 1% of hydrogen demand, while biomethane is just 1% of gas production, but interest in these gases is gathering pace, with more and more countries committing to targets and funding," the release said.
The EU's 'RePowerEU' envisages 35 Bcm of biomethane and about 70 Bcm equivalent of clean hydrogen demand in Europe by 2030, together accounting for around 25% of the EU natural gas market currently, it added.
Gas market supported
Global gas demand dropped by 2% in 2020, reflecting lower economic activity levels due to the coronavirus pandemic and movement restrictions to curtail the spread of infection, the GGR 2022 said. Demand levels recovered in 2021 by 4% year on year, with a rebound in economic activity and extreme cold weather events driving higher use of gas for heating, it said.
Over the past two years, gas prices have also seen an unprecedented level of volatility, it said.
TTF gas prices fell to record low levels of $1.20/MMBtu in May 2020, triggered by nationwide lockdowns and a pandemic-driven low demand environment but prices recovered quickly in 2021 and rallied upward, as the pace of global economic activity picked up, and gas demand increased, outpacing capacity additions, it said. The Russia-Ukraine conflict that started in February further exacerbated the already tight market, and the TTF Front Month contract was propelled to a new high of $68/MMBtu in early March, the report said.
Gas prices are likely to stay high in the near-medium term, Vijay Krishnan, partner and head of Asia Pacific at Rystad Energy said at a media briefing to coincide with the launch of the GGR 2022.
However, with the addition of FSRU capability going into the Eurozone and with additional infrastructure investments pouring in, reliance on Russian gas can be moved away so that supply coming from other parts of the world will be able to take on that demand, he added.
Global LNG trade increased 6% on the year to reach 385 million mt in 2021, with economic activity picking up in several countries, the report said.
Meanwhile, long-term LNG contracts are gaining in popularity to reduce exposure to spot-priced market volatility, particularly in Europe.
With lower volumes flowing from Russia, Europe's reliance on cargoes from the US, Africa and the Middle East increased, it said.
Despite reaching record high prices in 2021, investment in new production capacity and LNG liquefaction remained low, given uncertainty regarding gas pricing and demand visibility in the medium term.
Complicating matters, numerous liquefaction projects were delayed due to the global pandemic, with only one project being sanctioned in 2020 and three liquefaction projects sanctioned in 2021, it added.
Originally published by S&P Global.
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