IAE - Gas remains a vital energy carrier and guarantor of energy security: demand is growing

IAE - Gas remains a vital energy carrier and guarantor of energy security: demand is growing


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In the recent International Energy Agency report “Global Gas Security Review 2024”, major takeouts on natural gas security, liquidity and pricing show that whilst the “golden age of gas” may have a specific historical connotation, natural gas retains a vital and medium term irreplaceable role in the energy value chain.

 

Gas demand is on the rise, and is expected to reach an all time high of 4200bcm. Whilst APAC energy and industrial growth is a major driver, the rise in demand for gas in the European industry should be recognised. Gas might not regain the place it once did in the EU due to a combination of geopolitical friction and EU industrial policy, this growth shows that European industry will remain an important consumer of natural gas and will need secure supply to underwrite the €millions of employment and broader socioeconomic value.

One of gas’ great strengths is its inherent flexibility, acting as both base load and back up in power generation across the world. With the rise of intermittent renewable electricity generation, the importance of gas’s inherent flexibility becomes apparent. Gas has effectively cemented electricity generation security in the US, India and Colombia when increasingly dominant renewable generation systems failed due to adverse weather volatility.

LNG is in some ways reverting to traditional gas contracting policies. There was a time when pipeline gas came with restrictions on resale – molecules delivered to a client were for that specific client and resale / trading was not meant to happen. Whilst a combination of policy and commercial pressure changed this system, it is interesting that the supposedly unrestricted global mobility offered by the LNG market may be reverting towards locked in geographies.  

 

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All of this means that domestic or locally produced gas is the guarantor of energy security

 

  • Due in part to US policy, there has been a slower than hoped for ramp up on LNG liquidity
  • Geopolitical friction – in particular the Russian invasion of Ukraine means there is still less gas in the system than would have been the case
  • The development of LNG contracts that lock the cargo into specific client / geographies

Combine all three of these factors with the inherent intermittency challenges of renewable energy and the environmental downsides of coal or oil based energy and one can easily see why gas demand is growing AND why policy makers should encourage either domestic production, or regional infrastructure projects that can underwrite energy security.

European policy makers in particular should keep an eye on weather forecasts. Any system that developed an inherent reliance on Russian supplies is at the mercy of the weather and APAC demand. A growing APAC industrial capacity only needs cold weather for a generation of EU policy markers to have to seriously question at least some of their decisions.

Read more: 

https://iea.blob.core.windows.net/assets/fa115714-f9f8-4727-8520-5e8b5ca265ad/GlobalGasSecurityReview2024.pdf