The International Gas Union announced the release of the Global Gas Report 2022, produced in partnership with Snam and Rystad Energy.
he global gas market saw a very unusual two years, with global pandemic lockdowns, and a brief period of excess supply, followed by a shortage of spare capacity, extreme price volatility, and a major energy crisis on the heels of geopolitics.
Energy security is prominently back on the agenda, while progress on emissions is reversing and putting energy transition at risk.
Positive lesson from Covid-19
The natural gas value chain demonstrated notable resiliency through the Covid-19 pandemic. Despite unprecedented shocks to the global energy system and
challenging operational environments, gas has continued to reliably fuel society’s critical functions, including power and water supply, hospital equipment, food production, and medical components manufacturing. The industry also nimbly adjusted to geographical and sectorial changes in demand patterns.
Gas prices fell to record low levels of $1.20 per MMbtu in May 2020, triggered by nationwide lockdowns and a pandemic-driven low demand environment. US LNG cargos were canceled between April and July, as the market demand remained depressed. Prices recovered quickly in 2021 and rallied upward, as the pace of global economic activity picked up, and gas demand increased, outpacing capacity additions. Both the Asia Spot and TTF gas prices hit record highs, with the Asia Spot price peaking at $54 per MMbtu, as Europe and Asia competed for LNG cargoes. The Russia-Ukraine conflict that started in February 2022 further exacerbated the already tight market, and the TTF Front Month contract was propelled to a new high of $68 per MMBtu in early March.
Long-term LNG contracts are gaining in popularity
The European market, which has been purchasing most of its LNG from the spot and futures markets, was particularly exposed to the price shocks in 2021 and 2022. With lower volumes flowing from Russia, Europe’s reliance on cargoes from the US, Africa and the Middle East increased. China was to some extent shielded from high gas prices, due to its preference for long-term oil-indexed contracts over spot cargoes. A higher share of long-term LNG contracts can be used to minimize exposure to market volatility.
When it comes to gas, the focus should be on developing a diverse gas supply chain through both upstream production and infrastructure developments. Storage can also play an important role in ensuring energy security by offsetting disruptions to the supply chain. In addition to investing in more storage capacity, governments can impose mandates for minimum storage levels.
Global CO2 emissions have risen 5% between 2020 and 2021
This is related to the recent gas-to-coal switching. To reverse this rising emission trend, global energy demand-supply will need to be rebalanced, along with appropriate emissions control pricing, carbon and pollution policies.
Gas will be critical for an achievable, affordable, sustainable, and secure decarbonization of the global energy system
Initially this can happen through reversing the recent growth in coal use as well as through oil displacement, while supporting the acceleration of renewables deployment through grid balancing and integration in the power sector. Progressively, low-carbon and zero-carbon gases, such as hydrogen, biomethane and natural gas with CCUS, will support deeper decarbonization across sectors alongside renewables and other Paris-compatible fuels. Leveraging existing natural
gas infrastructure will be critical in enabling these new decarbonized gas options to commercialize and scale. New gas infrastructure can be designed in a way to enable further scale up of low- and zero carbon gases and, supporting the achievement of Paris agreement objectives.
Rapid scale-up of low- and zero-carbon gas technologies will be needed
This will require strong enabling policies, timely investment globally, as well as access to liquidity for capital-intensive projects. To meet the required global capture volume under Rystad Energy’s 1.6-degree scenario, the deployment rate for CCUS needs to scale up by more than 170 times, from around 45 million tonnes per annum of CO2 captured globally today to 8 gigatonnes by 2050. The same could be said for low- and zero-carbon gases.