Switch to renewables means natural gas no longer a viable transition fuel
Russia’s invasion of Ukraine is a historic turning point in global energy markets, providing an unprecedented incentive to accelerate the transition to clean energy sources of fuel, according to the World Energy Outlook 2022 released on October 27, 2022.
Economic sanctions on oil and coal imports from Russia and its cutback on the natural gas supply have caused a dent in the world’s energy supply. Russia is the world’s largest exporter of fossil fuels.
The supply of natural gas is hit hard in Europe, said the report by intergovernmental organisation International Energy Agency (IEA).
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Electricity and heat demand in the winter months shoot up in the Northern Hemisphere, so it is likely to be a challenging time for the European Union for the next couple of years, the report highlighted.
Russia supplied 40 per cent of Europe’s natural gas, mostly via pipelines. Due to geopolitical tension, the report said that “the era of rapid growth in gas demand draws to a close” and its role as a transition fuel has been dwarfed as a result.
The global energy crisis has sparked desperate attempts from governments to promote energy security.
Governments either tried to go for short-term responses like boosting fossil fuel investment and subsidies or accelerating clean energy transitions with programmes such as the REPowerEU and legislations like the United States Inflation Reduction Act
Russia’s share of internationally traded natural gas may drop from 30 per cent in 2021 to 15 per cent in 2030, current scenarios indicate. If countries meet their pledges, Russia’s natural gas trade will fall to 10 per cent.
This is because China already has enough contracts for liquified natural gas and, therefore, will not be able to accommodate a pipeline from Russia, IEA reported.
Natural gas demand is expected to be 750 billion cubic metres lower than it is today by 2050, driven by a switch from natural gas to renewables, according to a global Stated Policies Scenario that projects the trajectory of current policies.
Global natural gas demand may increase by 5 per cent by 2030 and plateau without much change by 2050 because developing countries in South and Southeast Asia are no longer enthusiastic about gas as a transition fuel, the report said.
While coal demand may peak soon, oil demand may peak in the mid-2030s before dropping marginally.
Oil currently comprises 80 per cent of the global energy mix, but it may drop to 75 per cent by 2030 and around 60 per cent by 2050, based on the analysis of current policies.
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The demand for fossil fuels is expected to decline by 2030, according to Announced Pledges Scenario, which are projections based on IEA member countries’ climate pledges.
As per current policies, natural gas accounts for 50 per cent of the rise in electricity generation costs worldwide and prices may remain high until the late 2020s. The costs of renewable electricity generation were marginal, demonstrating the potential of energy transitions as a solution, the report said.
“High energy prices are causing a huge transfer of wealth from consumers to producers, back to the levels seen in 2014 for oil, but entirely unprecedented for natural gas,” the report read.
“The environmental case for clean energy needed no reinforcement, but the economic arguments in favour of cost-competitive and affordable clean technologies are now stronger — and so too is the energy security case.
Today’s alignment of economic, climate and security priorities has already started to move the dial towards a better outcome for the world’s people and for the planet,” IEA Executive Director Fatih Birol said.
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