Changing role of gas?
Natural gas has been seen as a bridging fuel in the transition from fossil fuels to renewable energy. Gas prices, however, are spiking, at the same time as we see reduced supply from Russia due to its invasion of Ukraine, louder calls to decarbonize quicker, and breakthroughs in hydrogen technology. So, should we still expect natural gas to be a bridging fuel playing a key role in the energy transition, or will it play a more marginal role? Could gas be losing its footing as the fuel of choice going into the energy transition in some parts of the world, while maintaining a strong position in other parts? On the one hand, for instance, shipping investors have shelved LNG propulsion projects, while elsewhere new incentives have been introduced for the replacement of residential gas boilers. Still, demand for gas is very sticky and the world will be undersupplied for years to come.
The EU has been very explicit about its determination to reduce its reliance on Russian energy exports, which in turn shifts the focus towards the response of producers such as the USA and other countries in supporting these goals. We have seen significant commitments to invest in gas, liquified natural gas (LNG) and renewables to replace supply from Russia. LNG is thus at the start of what looks to be another upcycle decade for investment and production as a vital source of energy for Europe and Asia.
As companies continue to consider how they can ease the supply crisis in the face of the new geopolitical situation, while investors review their portfolios in a new light as supply chain issues persist, we are likely to see new commercial models emerge as energy security, inflation and interest risk in the short-term trump ESG and climate related risks. In the longer term, however, the Russian invasion has triggered an acceleration of renewable energy initiatives, especially in Europe. With this backdrop, we invite you to join us for Rystad Talks Energy on May 26th, when we will also discuss what ‘Captain (LNG) America’ can do to help ease the supply crunch.