Natural gas is likely set for a decade-long boom but will then follow oil by hitting peak demand in all but the most conservative estimates of what energy transition will look like, according to BP’s 2020 Energy Outlook, published this week.
While two of BP’s three scenarios for a lower-carbon future suggest that demand for oil peaked in 2019, the outlook for cleaner-burning natural gas is underpinned by demand from fast-growing developing countries and, to a lesser extent, the adoption of carbon capture, utilisation and storage (CCUS) technology.
Modelling based on BP’s “Net Zero ” scenario — which is broadly consistent with reaching Paris climate goals of limiting global warming to 1.5 degrees Celsius — saw gas demand peaking by the mid-2020s, then falling to a third of 2018 levels by 2050.
In the company's “Rapid” scenario — which includes much higher carbon prices but patchier policy measures and less dramatic societal changes than Net Zero — demand for gas grows strongly for 15 years, before peaking and then falling back to 2018 levels by 2050.
Under the “Business As Usual” (BAU) scenario, BP expects demand for gas to continue to grow over the entire forecast period, increasing by a third by 2050.
The Rapid scenario forecasts a 30-fold increase in renewable energy capacity by 2050, but BP said gas would still be needed to meet new demand in fast growing, developing economies.
This scenario forecasts natural gas demand in India and other fast-growing Asian economies more than doubling over the first 15 years in Rapid, accounting for around two-thirds of the global growth in demand.
“The role of natural gas in supporting a shift away from coal stems from the possibility that renewables and other non-fossil fuels may not be able to grow sufficiently quickly to replace the coal on their own, at least in the short-to-medium run,” said Spencer Dale, BP’s chief economist.
LNG trade in the Rapid scenario bounces back strongly from the near-term fall associated with Covid-19, booming from 425 billion cubic metres in 2018 to around 1100 Bcm by the mid-2030s.
The US, Africa and the Middle East emerge as the three main hubs for LNG exports in a globally integrated market, BP's Energy Outlook stated.
However, LNG trade then falls to around 970 Bcm by 2050, under the Rapid scenario, as import demand in developing Asia starts to decline, driven by a rising development of other local sources of energy, including renewables and biomethane
“The pace of this decline in LNG exports after the mid-2030s is greater than the speed of depreciation of liquification facilities, implying that (by the late 2040s) some facilities need to be operated at less than full capacity or shutdown prematurely,” BP said.
Applying the more conservative BAU scenario, BP forecast LNG trade only passing 1000 Bcm by 2050, but with 60% of that growth still occurring over the next decade.
In the more aggressive transition scenarios, demand for gas is also supported by the intermittency factor associated with heavy growth in wind and solar power.
Capacity growth in these categories averages close to 350 gigawatts per annum in the Rapid scenario, and almost 550GW per year in Net Zero, compared with annual increases of around 150GW in recent years.
BP's Rapid transition forecast shows a sharp slowing in the build-out rate for wind and solar in the 2040s, once their share of global power rises above 50%, and a similar trend for Net Zero.
BP lists CCUS as one of several technologies and solutions that may be needed to ensure the availability of firm power, along with hydrogen, bioenergy and batteries.
The Rapid scenario for 2050 showed around 40% of all natural gas used in conjunction with CCUS, capturing over 2.5 gigatonnes of C02 emissions.
This share rises to three-quarters of natural gas used with CCUS in the Net Zero scenario.
Natural gas used with CCUS accounts for between 8% and 10% of primary energy in 2050 in both Rapid and Net Zero, providing near-zero carbon energy directly to the industrial and power sectors and indirectly via the production of blue hydrogen.
BP also outlined the continued role that its own natural gas business is expected to play in bridging the energy transition.
Federica Berra, BP’s senior vice president for integrated gas and power, speaking during the company's strategy presentations this week, highlighted BP’s partnership in Brazil’s Port of Acu, which includes an LNG regasification terminal with capacity of 7.5 million tonnes per annum.
LNG will come from the company’s LNG trading portfolio, and an initial 3GW of installed capacity is expected to provide energy for up to 14 million households.
The project includes expansion on power capacity and a domestic gas and power hub capable of also receiving future offshore gas resources.
The second example was Guangdong Dapeng LNG, capable of processing of more than 8 MMtpa of LNG in 2020, where recent gas sales agreements opened the door to the directly supply of gas to customers in China.
“Through this facility we are leveraging our access to equity LNG from North West Shelf and our trading portfolio,” Berra said.