From the editor: A warming planet will need less natural gas for heating [Gas in Transition]
Floods in the UAE and insufficient water in the Panama Canal – neither are exactly normal. The physical impacts of climate change are becoming more evident, as are their implications for gas and LNG demand.
The northern hemisphere has just experienced the warmest winter on record, and nowhere has it been more welcome than in Europe. Reduced heating demand has been critical not just this winter but last year in alleviating the pressures wrought by the loss of Russian pipeline gas. Over both the 2022/23 and 2023/24 winters, temperate weather has come to Europe’s rescue, limiting its skyrocketing demand for LNG and allowing it to build and conserve much higher than normal gas inventories.
It should not all be attributed to global warming, which is one of a confluence of climatic events affecting the 2023/24 winter – El Niño conditions, a strong North Atlantic Oscillation and a peak in the solar activity cycle all played their part, according to meteorologists, but there can be little doubt that the weather is changing. 2023 was the warmest year on the modern temperature record, which began in 1850. The ten warmest years since then all occurred between 2014 and 2023, according to the US National Centers for Environmental Information (NCEI).
On the North American continent, the NCEI recorded temperatures 3.4°C above average between December and February this year.
Consider the joint impact on gas for heating demand and gas for power generation and it should be no surprise that US gas storage is bursting at the seams and prices have fallen well below $2/mn Btu. Global warming means living in a world in which there is much less demand for heating and more demand for cooling. This is not good news for natural gas.
Asymmetric impact
As the paper, Differential effects of climate change on average and peak demand for heating and cooling across the contiguous USA, explains, “In general, anthropogenic climate change drives robust increases in surface temperatures globally. If this were to lead to a shift in the distribution of temperatures without a change in the variability, then demand for heating would decrease and demand for cooling would increase.”
It isn’t that simple of course. The paper says that warming trends are accompanied by changes in the severity of extreme weather events and that shifts in the average temperature are better understood than shifts in the extremes, particularly cold extremes. However, the basic message is that temperatures are on average warmer, winters shorter and milder and summers longer and hotter.
This will change demand for gas both in volume terms and geographically.
The study found robust increases across the US in annual demand for cooling and robust decreases in demand for heating. As a result, across most of the US, total thermal demand (cooling and heating) shows robust negative trends, because the longer winters are further from a thermal comfort level than the summers. But, in southern states, the increased demand for cooling outweighs the drop in demand for heating, and, across the board, peak demand for cooling rises, while for heating it falls.
LNG demand globally is overwhelmingly concentrated in the northern hemisphere. Northern hemisphere winters are, for the most part, further from thermal comfort than northern hemisphere summers. There is likely to be an overall decrease in thermal load in the north of the northern hemisphere and a gain in the hotter southern parts.
Heating is provided by a variety of means, of which gas is extremely important. In some countries, such as the UK, gas heating serves about 80% of homes; in the US, the figure is 60% and in China 20%. Cooling is provided by electricity generation, in which gas again plays a critical role.
However, the stock of power generation assets globally is changing fast, owing to the construction of vast amounts of wind and solar power, in particular. With the technology at hand, total power sector decarbonisation has become the low hanging fruit of the energy transition and the basis for much more widespread electrification of the economy.
The US, by far the largest gas market in the world, will add some 63 GW of new power generation capacity this year, according to the Energy Information Administration. Only 2.5 GW is a gas-fired power capacity, compared with 36.4 GW of solar, 8.2 GW of wind and 14.3 GW of battery storage. The solar figure is for utility-scale solar only -- residential and commercial installations are also running at record levels.
This creates two asymmetries for gas demand: not only do heating requirements fall faster than cooling demand rises, reducing overall thermal demand, but gas consumption suffers significantly from the decrease in heating, while benefiting much less from the increase in cooling needs.
On top of this must be added heating sector decarbonisation. The International Energy Agency estimates that gas demand in buildings will fall by 65bn m3 in advanced economies from 2021-2030, owing to efficiency improvement and the adoption of heat pumps.
The impact on individual markets will of course be different. Gas demand for heating can be expected to fall in northern Europe for example, with little extra demand for cooling, which in any case would be met by an increasingly low carbon generation mix.
Those situated in warmer climes will experience an increase in cooling demand which exceeds the decrease in heating requirements, for example North Africa and the Middle East or southern China, where summer cooling demand has stretched peak generation capacities for years. If power sector decarbonisation is slow and population growth fast – gas’ share of thermal demand should rise. However, overall, a warmer world means less thermal demand for natural gas.