High prices jeopardize role of natural gas as bridging fuel in energy transition

High prices and volatile markets have jeopardized the role of natural gas as a bridging fuel in the energy transition, especially for emerging economies in the Asia Pacific region, experts said at the Energy Transition Asia Pacific 2022 conference.

"The most recent world energy outlook of the IEA for 2022, just about a month ago, said that the golden age of natural gas is now closing," Nobuo Tanaka, Chairman of the think tank Innovation for Cool Earth Forum (ICEF) and former Executive Director of the International Energy Agency (IEA), said at the event hosted by Reuters on Nov. 30 - Dec. 1.

Tanaka pointed out that as early as 2011 he had stated that "the golden age of gas" was in progress, but under record-high prices triggered by the Russia-Ukraine conflict, gas may no longer be the transition fuel for Asia's growing economies.

Tanaka said relying on nuclear energy as an interim solution is not ideal given Japan's experience with nuclear energy after the Fukushima nuclear disaster in 2011. Japan still needs nuclear for energy security and decarbonization, but the sustainability of nuclear energy must be ensured, and concerns like waste disposal, accidents, and nuclear proliferation need to be addressed, he said.

Enabling developing economies to replace coal with gas and restoring investor confidence in gas markets are key challenges, Tanaka said. "Some arrangement for providing incentives for private sector to invest in natural gas is probably a very important task at this moment," he said.

Hidetoshi Nishimura, President of the Economic Research Institute for ASEAN and East Asia (ERIA) also suggested short-term solutions to the global gas crisis.

He said it is important to optimize LNG trade routes by taking advantages of flexible contractual agreements, intensify multilateral discussions to mitigate gas price volatility, and urgently establish a universally accessible, real-time information platform on global natural gas trades.

It is crucial to support countries with idle capacities or delayed upstream and midstream gas projects to regain their capacities to produce and export gas, especially to the most needed regions, Nishimura said.

Southeast Asian LNG exporters like Indonesia have some of the region's largest gas reserves but have struggled to get LNG export projects off the ground for decades due to bureaucratic delays and resource nationalization. Other regional countries like Thailand, Malaysia and Myanmar are grappling with declining gas production and the lack of upstream investment.

Emmanuel Rubio, CEO with Philippines' energy company Aboitiz Power, said the firm was working with Japan's energy company Jera on several LNG to power projects to support smooth energy transition.

Michal Meidan, Director of China Energy Programme with Oxford Institute of Energy Studies, pointed out that more natural gas will flow to emerging economies after the market rebalances from current turbulence.

Long road to renewables

While bank financing for coal projects has become increasingly restricted, very few gas projects are taking off despite the current global gas crisis, Rakhi Anand, Senior Vice President, Structured Finance, Power & Infrastructure at Sumitomo Mitsui Banking Corporation (SMBC) said at the recent FT Commodities Asia Summit.

This has further complicated the role of gas as a transition fuel, especially when the road to a fully renewables-driven global economy is still uncertain.

"We need to be super pragmatic with the projects we are promoting in the Asia Pacific," Samuel Morillon, Senior Vice President with Siemens Energy, said at the Reuters event.

He said coal still dominates the energy mix of many Asian economies and substituting coal with clean energy solutions cannot happen overnight, necessitating gas use.

Benjamin Dumas, Head of New Markets with Lightsource BP Asia, said power grids in Asia Pacific have been designed to accommodate thermal power due to dependence on fossil fuels, and a renewables-dominated power system is more complex, requires upgrading and digitization, and expanding utility-scale battery storage to address intermittency.

Today 733 million people still do not have access to electricity, and about 1.5 billion people have unreliable power supply, making affordable energy critical, David Lecoque, CEO with the Alliance for Rural Electrification, said.

"The key to cost reductions is economies of scale, and for that we need ambitious governments that want big [renewable] projects. We need gigawatt [scale] ambitions, not megawatt [scale]," Ingunn Svegaarden, Senior Vice President of Renewables with Norway's Equinor, said at the event.

She said the ambitions of the governments need to be translated into speedier investment in infrastructure and permitting renewable energy projects. "Today, the average consenting and permitting for an offshore wind farm takes 8-9 years. That's a very low-hanging fruit to fix," she pointed out.

It is important to create awareness that commercially viable clean technologies already exist, and solar power, within the Asia-Pacific context, is already one of the cheapest sources of energy, said Jared Chng, CFO with Engie Southeast Asia.