Energy Transition, Natural Gas and... ‘Baseless’ Decisions

When having to make difficult decisions involving very-long-term implications, looking into and reflecting upon educated ‘guess-scenarios’ is worth its while. Even if we use only broad round figures, it seems certainly better that reaching ‘baseless’ (let alone entirely speculative or demagogic) decisions.

Let a few somewhat simple thoughts and assumptions be run:

– By 2040, global GDP will be in the region of 240 trillion ($US PPP), essentially doubling today’s GDP (PPP).

– While recent years have shown a trend of ‘decoupling’ between GDP and energy demand (i.e. GDP grows faster than energy demand or, put differently, energy intensity declines), the reality is that (whichever the relationship factor) ‘as GDP grows, so does energy demand’.

– The conclusion is simple: by 2040 we will need more primary energy than today. Let it be assumed that we will need about one third more primary energy in the world.

– Climate change concerns require from us a serious effort in reducing GHG emissions. Until today, not much change has been witnessed in the relationship between energy demand and GHG (CO2) emissions (i.e. they have continued to grow hand-in-hand). One critical question then, is how demand for energy can be met without increasing GHG emissions.

– Recent data have shown us some worrying trends: (i) global energy intensity improvements have slowed down, and there are no signs of a shifting towards faster improvements; (ii) states’ RD&D spending seems basically stagnated, at least without a clear upwards trend (and it is unlikely that corporations will take a lead on this, in particular as to basic research); (iii) while investment in renewables has grown several fold over the last 15 years, it is nowhere near the scaling-up necessary to achieve a global energy transformation that rules out fossil fuels in their entirety (even if a strong shift away from coal seems attainable).

– Natural gas is admittedly no green source of energy. However, keeping global GDP growth a reality (not a ‘tale’ as some would like to portray it) means satisfying the global energy demand. For otherwise one would not be taking seriously the Sustainable Development Goals (notably, Poverty Eradication, Zero Hunger, Clean Water and Sanitation, and Affordable and Clean Energy). Green energy alone will not suffice.

– Bottom line? By 2040, the volumes of petroleum (with natural gas assuming a greater share year-on-year until then) needed to meet the energy demand are likely to be more or less around what is needed today (much depending on developments around energy intensity and scaling-up of renewables).

– Taking at face value (because there is no alternative realistic assumption) a recent estimate that, by 2040, 80% of global energy demand growth will be met by natural gas and renewables, one can reasonably conclude that growth in natural gas demand over the next couple of decades is inevitable.

– At first glance, one could submit, while the energy matrix will be transformed by 2040, the share of natural gas therein will either remain the same or even increase slightly. Looking beyond, to 2050, the scenario seems unlikely to change significantly.

– Simply put, a scientific-technological earth-shaking event aside, there appears to be no energy transition scenario without natural gas.

Two decades plus is a long time; more than enough for natural gas projects to be developed and offer returns. Perhaps this explains why E&P global investment continues to have a healthy growth, no region taking a clear lead in attracting such investment. Decisions to invest have a recognizable basis, and are apparently made on each case’s merits.

On a final side note, as a Portuguese I should say I am somewhat puzzled: why would one rule out petroleum exploration in the vicinity (even if a frontier area) of one of the largest natural gas markets in the world?