The shift to renewable fuels for gas is happening at lightning speed compared to the industry’s previous adoption of new technologies. There’s a lot of new information being released on a daily basis – it can be difficult to sort through all of it to identify the most relevant, reliable information and what it means for your gas utility.
Sensus is here to help. This post is part of a series on Hydrogen and Its Potential for the Gas Industry. In this series, we’ll review the fundamentals of hydrogen, discuss the impacts to natural gas utilities and your end customers, and keep you up to date on the recent hydrogen reports and policies.
Each year, the International Energy Agency (IEA) publishes their annual World Energy Outlook that provides a deep dive into global energy production, demand, and policy. They recently released their Outlook for 2022, which explores a number of global factors, including how the Russian invasion of Ukraine has impacted the future trajectory of different fuels. This blog post summarizes the key points of the report that pertain to the natural gas industry.
In the report, the IEA explores three global scenarios and their potential impact on the future of energy.
- STEPS: Stated Policies Scenario is the trajectory implied by today’s policy setting.
- APS: The Announced Pledges Scenario assumes that all aspirational targets announced by governments are met on time and in full.
- NZE: The Net Zero Emissions by 2050 Scenario maps out a way to achieve a 1.5°C stabilization in the rise in average global temperatures.
Each scenario leads to different projections for gaseous fuel supply, seen in Figure 1. As shown in the diagram below, the STEPS scenario forecasts an increase in total gases, while the APS and NZE scenarios show drops in unabated gas supply being offset by an increase in hydrogen, biogas and gas use with carbon capture and storage (CCUS).
But to understand what’s driving the future projections, we need to revisit the history of natural gas supply. The ‘Golden Era’ of natural gas began with the advent of fracking. The increase in production and decrease in cost led to a displacement of other fossil fuels, such as coal, which has helped reduce global greenhouse gas emissions and make electricity affordable in developing economies. However, recent strains on the global natural gas supply due to the Russian invasion of Ukraine has destabilized the market and driven natural gas prices high. Supply scarcity of natural gas has even led to the rebound of the coal industry in some countries, such as India, and some developing economies, such as Pakistan, have been priced out of natural gas, which has led to reversal in economic gains.
Globally there is an increased concern surrounding climate change in both developed and developing economies. Countries view clean energy as both a source of economic growth and a pathway to a greener future. While natural gas has often been touted as the transition fuel for the future, current market dynamics are pushing many countries to explore how they can invest directly into renewable energy and skip the transition fuel period.
As seen in Figure 2, industry will drive the growth for natural gas across the globe, while natural gas used in building and the power sector will see a slight decline due to efficiency gains in electric heat pumps and decreasing costs in renewables. In the US, based on current policy (STEPS), natural gas production will see a growth rate of only 1% per year for the next decade, with a leveling out and potential decline of production beginning in 2030. This is much lower than the production growth the US has seen in the last decade.
As natural gas growth flattens, growth of renewable energy and alternative fuels, such as hydrogen, increases. In developed countries, renewable energy growth is outpacing population growth leading to a displacement in fossil fuels used in buildings and the power sector.
Low-emission hydrogen is viewed as a way to decarbonize sectors that are difficult to electrify, such as refining. There is growing investment in the hydrogen industry, with 5 times more invested in 2021 than in 2020. This shows increased investor confidence in hydrogen related startups. The European Union is driving this growth in investment in hydrogen due to a desire to decrease reliance on natural gas imports from Russia. Other countries, such as the US, Japan, and China, have announced large hydrogen funding opportunities and hydrogen related policies as well.
Low emission hydrogen production is expected to reach over 30 Mt by 2030, with most of it produced close to the point of use. However, there is an increased interest in establishing global trade routes in hydrogen with 12 Mt of export capacity in currently announced projects. The investment needed to set up the international value chains for low emission hydrogen are huge, but these announced export projects show that this investment has begun.
Current world events have disrupted the status quo of the energy economy, driving more investment into renewables and low emission fuels. Demand for natural gas will flatten and potentially decrease over the coming decades. Through 2021 and 2022, interest in low emission hydrogen has drastically increased, seen by the jump in funding and supportive policy for the industry. The value chains for the low-emission hydrogen industry are in the process of being established and countries are investing to stay at the forefront of this market. While hydrogen is not the silver bullet to solve the world’s energy crisis, it will play a large role in transitioning industries that are difficult to decarbonize.
To download the complete IEA World Energy Outlook 2022, click here.