From the editor: Where next? Gas demand projections diverge hugely [Gas in Transition]
The Gas Exporting Countries Forum (GECF) released its Global Gas Outlook 2050 in March, forecasting that global natural gas demand will rise from 4,015bn m3 in 2022 to 5,360bn m3 in 2050, an increase of 34%. LNG use and trade see particularly strong growth, more than doubling to reach 1,110bn m3 in 2050, making up 64% of the traded gas market.
This stands in stark contrast to the International Energy Agency’s (IEA) 2023 World Energy Outlook, which, based on current policies, foresees a peak in global gas demand by 2030 and then a limited decline, with gas consumption still a major part of the energy mix in 2050 at 4,173bn m3, but more than one fifth lower than the GECF projection.
However, the IEA’s assumption is that policy globally becomes steadily more ambitious in terms of limiting greenhouse gas (GHG) emissions, increasing the downward curve of gas demand already evident by the policies in place in 2023. In a world in which the IEA’s net zero by 2050 outcome is achieved, gas demand falls to just 919bn m3 in 2050, less than 20% of that forecast by the GECF.
That is a big difference.
Yet both use the same underlying assumptions – the medium variant of UN projections on population growth and 2.6% annual GDP growth on average for the world economy. So how do they arrive at such different outcomes?
One of the fundamental differences between the two is their view on primary energy demand. In a world in which the global population is expected to increase from 8.0bn in 2022 to 9.7bn in 2050, primary energy demand for the GECF rises by 20%, while in the IEA’s net zero scenario it contracts by an average 0.9% a year through 2050, owing to energy efficiency gains and electrification.
Obviously, both cannot be right. Both could, of course, be wrong.
The IEA’s net zero scenario, which strictly speaking is not a forecast, supposes a step change in the rate of energy efficiency improvement, which will be hard to realise to a sufficient degree in the context of increased population growth, rising incomes and continuing urbanisation.
Policy strengthening
If the IEA’s pathway assumes over ambitious energy efficiency gains, the GECF forecast appears not to take sufficient account of more stringent climate policies. Europe, which has become a key centre of LNG demand as a result of Russia’s invasion of Ukraine, is the prime example.
In February, the European Commission presented a recommendation that the bloc should set a 2040 target of a 90% reduction in GHG emissions compared with 1990, a significant increase from the 55% target set for 2030.
The recommendation is based on advice given by the European Scientific Advisory Board on Climate Change. Its report,Scientific advice for the determination of an EU-wide 2040 climate target and GHG budget for 2030-2050, published last year, outlines multiple scenarios by which the target could be achieved. But all assume a substantial reduction in gas use and imports, including a complete phase out of coal-fired generation by 2030 and the phase out of all unabated gas-fired generation by 2040.
This is far from the GECF’s view of how gas demand will evolve in the EU. It does recognise severe downward pressure as a result of existing policies – the EU’s Green Deal, Fit-for-55 package and the REPowerEU plan – but does not appear to take into account the much deeper level of decarbonisation set to be realised by 2040, if the Commission’s proposed new target is adopted and acted upon.
The Advisory Board assessed 36 scenarios, which show natural gas accounting for less than 11% of electricity generation in 2030 at most, while in some scenarios it falls to 1% or below. By 2040, gas’s share of power generation is 6% or less in all scenarios. It falls to between 2-4% in what the Board describes as ‘iconic pathways’ and less than 1% in 12 of the scenarios. Scenarios that use higher amounts of gas tend to have a greater reliance on carbon removals.
In its demand-side focus scenario, natural gas use falls steadily until 2035, after which it remains at just over 2% of generation until 2050. In its high renewable energy pathway, gas-fired generation declines continuously after 2025 to 0.1% by 2050. In its mixed-options scenario, gas use falls sharply until 2030 but then rises as a result of carbon capture and storage accompanied by a prioritisation of carbon removals from land rather than the use of bioenergy.
Political drift
It is uncertain how the Commission’s proposal will fare, particularly given a political shift to the right across Europe to parties hostile to the current trajectory of EU climate policy. This is likely to be manifest in a change in the political composition of the European Parliament in elections this June.
The balance of power will most likely still be held by the conservative Europe People's Party (EPP) Grouping, which is also likely to remain the largest single group. The EPP has endorsed the current Commission President Ursula von der Leyen, whose home party, Germany’s Christian Democratic Union, is part of the EPP, for a second term, suggesting she will continue in the position after June.
The rightward shift in European politics may moderate the Commission’s environmental push, but no major reversal is likely. The Commission is unlikely to veer too far from the scientific advice, which is for a 90-95% reduction in GHG emissions by 2040.
That means that, in all likelihood, a target of 90% or close to it will be set for 2040. It will then be up to the member states to formulate national plans to achieve the target. Having just overhauled major elements of its economic and environmental legislation to come into line with the Fit-for-55 package, the EU will also once again have to come up with policies, sub-targets and strategies which move the bloc towards the set goal for 2040.
Can deep decarbonisation be achieved?
A 90% reduction in GHG emissions by 2040 is hugely ambitious. It cannot but rely on near total decarbonisation of the power sector, and will have to penetrate much further into harder-to-abate sectors of the economy such as transport, buildings and industry.
The GCEF forecast appears to assume that such a high target will not be fully achieved, and that there are elements of gas demand growth, for example in transport and blue hydrogen production, which will partially offset the decline in gas use in other areas.
Electrification is the primary pathway
The energy transition is fundamentally reliant on much more widespread electrification, which itself delivers a big chunk of the IEA’s energy efficiency gains, and which is why near total decarbonisation of the power sector is an absolute necessity.
It is also one of the more achievable elements of the energy transition. Solar power deployment is racing ahead, breaking a new record in Europe last year and there is every sign that it will continue to add more than 50 GW of new capacity a year. Wind deployment is lagging targets by a considerable margin, but also hit record deployment last year as permitting speed, auctions and the project pipeline all steadily gain momentum. The sector will be aided by EU initiatives such as the Wind Power Package.
There also appears to be a resurgence of interest in the nuclear sector, particularly in eastern Europe where both the Czech Republic and Poland are firming up new construction plans. In Poland’s case these would be the country’s first reactors. It has chosen to build Small Modular Reactors, despite their untested nature, based on the nuclear industry’s fanciful cost projections.
The power sector and electrification are both the key to the energy transition and the easiest challenges to overcome on an affordable basis, owing to the low cost of the primary renewable energy technologies – wind, solar and hydro. Nuclear tends to overrun on time and cost, but nonetheless results in long-life generation assets.
Pushing decarbonisation further into the economy will be expensive and exacerbate some of the issues highlighted by the support for the far right in Europe. It will cut both ways for gas. CCS in the power sector adds a cost addition to a fuel which is already viewed as expensive even if prices have now fallen back to levels before the Ukraine war. However, blue hydrogen production looks economically viable compared with green hydrogen pathways, despite the cost of CCS.
The expansion of gas use in long distance transport, both marine and on land, also looks like a source of demand growth, but only a transitory one. The EU’s 2040 target has major implications, it is still only a staging post to 2050, when the achievement of a net zero carbon economy – if realised – means gas use in the EU at least at the minimal levels forecast by the IEA.