(The opinions expressed here are those of the author, a columnist for Reuters.)
By Clyde Russell
BARCELONA, Sept 20 (Reuters) - Natural gas is no longer merely a transition fuel between the past of dirty coal and crude oil and the future of renewables, according to an increasingly confident cross-section of the industry.
A procession of senior executives of major companies, including Royal Dutch Shell and Exxon Mobil Corp , espoused this view while speaking at this week’s GasTech event, the industry’s biggest annual gathering.
While the industry has plenty to be buoyant about, including rapid and sustained Chinese demand for liquefied natural gas (LNG) and the shale gas revolution in the United States, it is running the risk of getting ahead of itself, while ignoring the threats it faces.
The idea of natural gas as a transition fuel was largely cemented by the International Energy Agency in 2011, when it published a report on what it termed the “golden age of gas,” which would see demand for the fuel jump by 50 percent to become 25 percent of global energy consumption by 2035.
Natural gas was seen as a cleaner alternative to coal, a factor the industry was happy to seize upon as it allowed them to boost output while being seen as part of the solution to climate change, rather than part of the problem.
The rapid expansion of shale gas production in the United States was largely behind the demise of many coal-fired power stations, while in China coal used in industries and for residential heating is being replaced by natural gas as part of the government’s efforts to reduce air pollution.
These dynamics are part of the reason why many players in the natural gas industry expect the market for LNG to rise from around 300 million tonnes a year currently to at least 450 million by 2025, and possibly even higher.
But for this to happen, almost everything has to work in LNG’s favour, and the risks must remain only possibilities.
LNG faces several challenges in Asia, the market expected to take the bulk of planned new output.
For countries that aren’t concerned with limiting carbon emissions, LNG is still more expensive than coal, especially if you plan to use low-grade Indonesian thermal coal.
For countries that do care about emissions, LNG will struggle to remain competitive with renewables backed up by battery storage.
For any would-be developer of a multi-billion dollar LNG project, the question has to be whether they can deliver the fuel at a price that can compete with what renewables plus storage are likely to cost in the future, not what they cost now.
The high-cost of LNG projects is likely to make company boards and financiers cautious about committing vast sums of money to what may become stranded assets.
The other factor that the natural gas industry may well be underestimating is the rise of environmental activism.
For much of the past decade, the activists have focused their attention on forcing coal out of the power mix, but that is changing into calling for an end to the burning of all fossil fuels.
In Australia, it would appear as much green activism is aimed at halting natural gas exploration as is targeted against coal mining. Politicians have started to take notice by taking steps to restrict fracking and also to ensure domestic supplies ahead of LNG exports.
This sort of activism is likely to spread and the natural gas industry, having helped knife coal, are likely to find the blades turned against them.
In some ways the natural gas industry should be embracing renewables and offering to work in tandem to create electricity supply networks that are both reliable and low in emissions.
But under this scenario, demand growth for natural gas would be more muted, making it more likely that the industry will rather choose to fight renewables until the bitter end.
Natural gas also has the advantage of being a flexible fuel, given it can be used for residential heating, in manufacturing and in transport.
But if the industry wants those sectors to consume significantly more, they will need to invest to develop markets, and not only spend capital on boosting supply.
Overall, the natural gas industry has reason to be confident about the future, but in giving up the concept that they are a transition fuel, they are inviting a fight with renewables that they are likely to lose in the end. (Editing by Edmund Blair)