Natural gas is expected to overtake coal and become the second fuel in the energy mix by 2045, but long-term demand prospects are somewhat tempered by increased renewables and efficiency, according to the Organization of the oil-exporting countries (OPEC).
Demand for natural gas is expected to rise from 64.2 million boe / d in 2020 to 85.7 million boe / d in 2045, the Saudi cartel said in its 15th World Oil Outlook (WOO) published on Tuesday. Almost 95% of this growth comes from developing countries, mainly Asia and the Middle East, and is driven by the power generation and industrial sectors.
OPEC researchers noted that natural gas was “relatively well protected” from the impacts of the Covid-19 pandemic in 2020 for a number of reasons. The demand for gas fell by more than 1.5% per year in 2020, mainly in power generation and industry.
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But this was less than initially expected by OPEC and was the result of several factors.
First, the researchers pointed out that natural gas prices were already falling due to a glut in the market that resulted in gas prices close to parity with coal, making the fuel switch economical. Regional and local policies have also supported the deployment of low-carbon natural gas in power generation and space heating. At the same time, liquefied natural gas (LNG) and compressed natural gas have found other applications in heavy trucking, shipping, and clean cooking, especially in China and India.
“Therefore, the decline in natural gas during the pandemic is somewhat offset by a combination of these other short and long term factors,” OPEC Secretary General Mohammad Sanusi Barkindo said.
Looking ahead, the cartel expects demand for natural gas to continue to grow in the medium to long term, in line with expanding economies and rising energy demand. This includes the increasing use of natural gas in power generation and industry. Natural gas is also expected to replace coal in power generation and industry as part of efforts to reduce the carbon footprint and tackle the problem of local air pollution, OPEC said.
In total, OPEC sees the demand for natural gas increase by around 21.5 million boe / d between 2020 and 2045. As a result, the share of natural gas in the energy mix would rise to nearly 24.5% against around 23% between 2020 and 2045.
Make room for renewable energies
OPEC, however, noted that the outlook for natural gas has been revised down by about 5.5 million boe / d from last year’s WOO. This is due to the growing number of energy policies supporting renewable energy – including financial / fiscal subsidies – and carbon neutrality commitments announced by several major consuming countries / regions. These commitments, the researchers say, are likely to affect long-term natural gas demand and are also supported by cost reductions from renewables, such as solar and wind.
“In some regions, renewable energy projects, for example large photovoltaic solar panels or onshore wind, are already more competitive with gas turbine combined cycle power plants on a full cost basis, even without a subsidy. », According to Barkindo.
Future expectations point to further reductions in renewable energy costs, OPEC said. This is likely to improve their competitive position vis-à-vis natural gas.
In addition, the surge in investments for renewable hydrogen, as well as biogas, is expected to reduce demand for gas in industry, “where decarbonization is not easy,” according to the cartel.
OPEC researchers said that in their own efforts to tackle climate change, several companies, including Royal Dutch Shell plc, TotalEnergies, Mitsui & Co. Ltd. and Gazprom PJSC, have started offering so-called “carbon neutral” LNG shipments on an ad hoc basis. The carbon dioxide (CO2) emissions linked to these cargoes (scope 1, 2 and 3) would have been offset by verified emission certificates linked to reforestation projects and reductions in emissions from energy-based energy. of coal.
“The industry, however, still does not have a consistent methodology on how to measure and verify offsets, which could be the next step if demand for carbon-neutral LNG cargo increases,” Barkindo said.
Meanwhile, the future of LNG in marine bunkers remains “uncertain for the moment”, according to OPEC researchers. Some in the industry doubt long-term sustainability as CO2 emission reductions are targeted, and there has been a call for the increasing use of renewable hydrogen or ammonia instead. “As a result, some orders for LNG-fueled vessels have been canceled amid these concerns. “
Developments around hydropower are similar to OPEC’s previous outlook. Hydropower use is expected to increase gradually throughout the forecast period, but still only account for 3% of the global energy mix by 2045.
“The limited opportunities for new sources of hydropower and the need for large capital investments dampen the prospects for growth, especially if investments are postponed due to the pandemic,” Barkindo said.
Overall, OPEC sees the fastest renewable energy growth among fuels through 2045, rising to 36.6 million boe / d in 2045 from 6.8 million boe / d in 2020. Au At a higher level, renewable energies would represent more than 10% of the world’s fuel. mix, compared to just 2.5% last year.
Oil drop, but no outlet
However, don’t rely on oil, at least in the short term.
The cartel said oil in 2020 represented 30% of global energy needs. Along with the recovery in post-pandemic demand, the share of oil should gradually increase to over 31% by 2025. It should reach 99 million boe / d in 2045 against 82.5 million boe / d in 2020.
The increase in world oil demand in the medium term (2020-2026) is estimated by OPEC at 13.8 million bpd. However, nearly 80% of this additional demand is expected to materialize in the first three years (2021-2023), mainly as part of the recovery process from Covid-19.
After 2025, the share of oil in the energy mix is expected to start declining and reach 28% by 2045. Notably, however, this is 1% more than what the cartel had previously forecast.
“Despite the deceleration in the growth of oil demand in the second part of the forecast period and the strong growth of other energy sources, such as other renewables, gas and nuclear, oil is expected to retain the highest share of the global energy mix during the entire period, “says Barkindo.
Meeting oil demand projections, however, requires “huge investments,” according to OPEC. The potential ramifications of not investing, the researchers said, would be in the interest of neither producers nor consumers.
“OPEC member countries remain committed to supporting investments, which benefit from sustainable market stability and an enabling environment. This is a central objective “of the Declaration of Cooperation,” said Barkindo.
Cumulative investment needs in the oil sector are expected to total $ 11.8 trillion between 2021 and 2045, according to OPEC. About 80%, or $ 9.2 trillion, goes upstream, most of which is in North America. US tight reservoir oil, in particular, is driving medium-term supply growth in non-cartel countries.
“The downstream and mid-term investment needs, in order to expand and maintain the refinery, storage and associated pipeline systems needed to bring oil to market, require 1.5 and 1.1, respectively. additional trillion dollars, ”Barkindo said.
Globally, total energy demand is expected to increase to 352 million boe / d by 2045, up from 275.4 million boe / d in 2020, according to WOO.
The Latest Outlook, released at the end of the cartel’s 60th anniversary year, “is a fitting bookend, according to Barkindo,” once again underscoring OPEC’s steadfast focus on evolving a better understanding of our possible energy future, and the challenges and opportunities that we all face. “