By: Clyde Russell – Reuters – The liquefied natural gas (LNG) industry has changed its tune from saying it is a transition fuel on the path to net-zero emissions, to believing it is an integral part of the solution and will be necessary for decades to come.
This optimism over LNG’s future was very much in evidence at Gastech, the industry’s largest global gathering, held this week in Singapore.
LNG sees its future largely in Asia, the top-energy importing and consuming region and the likely driver of global demand up to 2050, the target date that many countries and companies have for achieving net-zero carbon emissions.
“Natural gas will continue to play a critical role as a bridging and destination fuel for the energy transition,” was how Lorenzo Simonelli, chairman and CEO of service company Baker Hughes (BKR.O), put it at Gastech on Sept. 4.
The key word Simonelli used is “destination,” as it implies that LNG and natural gas are in the energy mix for a long time to come.
In effect, the producers of LNG and the service companies that help them make and transport the super-chilled fuel are making some pretty big bets, some of which will be difficult to win.
Following on from that, the LNG producers assume that renewable energies and new fuels won’t be able to meet this demand.
This means Asia won’t be able to afford to transition to renewable electricity such as wind and solar, backed by battery storage, and thus won’t be able to switch to all-electric vehicle fleets.
While there is the potential for new fuels such as hydrogen and its derivatives to come into the market, the LNG industry feels these will be too expensive and difficult to scale up in Asia, where countries are more concerned with expanding energy availability while keeping costs low.
The second bet is that the LNG industry will be able to convince government policymakers, companies, and consumers that their fuel is better than the dirtier alternative of coal-fired generation.
At Gastech there was much talk of displacing coal from the power-generation mix, especially in countries such as Vietnam that have rapidly growing energy demand but want cheap solutions.
The problem for the idea of LNG displacing coal is that this hasn’t really been happening, with Asia’s coal burn at record highs, although this is mainly a result of increased consumption in countries like China and India, which have vast domestic coal mining sectors.
It’s hard to see LNG being able to compete with coal on a cost basis, even with the next wave of LNG plants coming online from 2025 onwards, which may boost supply enough to lower spot prices for the fuel.
Rather, the LNG industry is likely to need some form of carbon pricing, and it will have to try to achieve the Goldilocks solution of a price high enough to disincentivize coal, but not too high to make renewables competitive with LNG.
In the absence of carbon pricing, LNG would likely still need government policies focused on carbon intensity and particulate pollution in order to displace coal in any meaningful way.
The third and most challenging bet is that the LNG industry will be able to successfully deploy carbon capture and storage (CCS) technologies at both a large enough scale and a low enough cost to make them viable.
In some ways, this is the key to LNG’s longevity in a net-zero world, as only with CCS will burning natural gas come close to being carbon neutral.
The alternative of using offsets would require massive volumes of carbon credits, which would be difficult and most likely expensive to create on the scale needed to abate the emissions from widespread LNG production and consumption.
At Gastech, several industry participants said the CCS technologies are available and can work, but there was also a tacit acknowledgment that the costs needed to drop substantially.
Again, this comes back to putting in place incentives to get CCS up to scale, either from subsidies or in the form of carbon taxes.
Overall, the industry is probably correct that energy demand, especially in Asia, is going to rise strongly in the coming decades.
They are also probably correct in thinking they can help meet that demand, and they are right that LNG is less polluting than coal-fired generation if you compare a power plant running on imported LNG versus imported seaborne coal.
But the LNG industry will also need to have policy settings just right and deploy technologies at a scale not yet seen to remain in the energy mix in a net-zero world.
The opinions expressed here are those of the author, a columnist for Reuters.