The global transition to a low carbon future is happening far too slowly to reach climate targets outlined in the international 2015 Paris Agreement on climate change, and the world will have to cut its demand for natural gas in the long term if it chooses a path that keeps climate impacts to a minimum, an executive with the Norwegian energy giant Equinor said.
"Everything that has happened since the Paris Agreement was signed in 2015 goes in the wrong direction," Equinor's Senior Vice President and Chief Economist Eirik Waerness said at an Oct. 10 event at the Center for Strategic and International Studies in Washington, discussing the "Energy Perspectives 2018" outlook issued by the company.
The report, released in June, presented three scenarios about the pace and scope of the energy transition that contain significantly different implications for natural gas and its trade in liquefied form. Equinor forecast the greatest LNG growth in a "reform" scenario, in which countries deliver on self-established carbon reduction measures outlined in the Paris Agreement by 2030.
In the reform scenario, long-term gas demand would increase to almost 4,800 billion cubic meters in 2050, which is about a 27% increase from the 3,740 billion cubic meters in 2017 gas demand estimated by the International Energy Agency. And Asia would remain the main growth engine for gas, although European imports would also increase.
But even if countries meet their commitments to the Paris accord, the world would fail to prevent global warming above 2 degrees C from preindustrial levels, Waerness said. The accord aimed to limit global average temperatures from rising above that threshold to avoid catastrophic impacts of climate change.
"We need more; there's an urgent need for action," Waerness said, calling for energy and climate policies including a carbon tax. "Enormous investments are needed across the energy spectrum" to meet growing energy demand and replace declining energy production, he said. That includes investments in areas such as renewable electricity, grid backup storage systems, and even new oil and gas supplies.
The Intergovernmental Panel on Climate Change, or IPCC, recently presented a similarly bleak outlook in an Oct. 8 report that called for rapid decarbonization efforts, which would require nations, local governments and the private sector to make changes on an unprecedented global scale. The IPCC found that limiting global warming to 1.5 degrees C would make the world a much easier place to live than what the Paris Agreement called for.
Two other scenarios outlined by Equinor led to lower gas demand than the reform scenario. In one scenario, a climate-focused world succeeds in curbing emissions to limit global warming to 2 degrees C. In this case, a strong emphasis on low-carbon energy sources and efficiency continues, and gas reliance is curbed. Gas demand peaks at around 4,000 billion cubic meters in 2030 and drops below 3,300 billion cubic meters in 2050.
LNG demand would still play a significant role in fuel switching from coal to gas in this scenario. And imports would still find markets in Asia, including China and India.
In the final scenario, characterized by geopolitical and regional conflicts, LNG growth would suffer from instability as the world whiffs on climate targets. Gas would lose terrain relative to coal in a world less focused on climate. Protectionism would discourage new LNG investments. A lower preference for imported gas would reduce global LNG demand in 2050 by almost 250 billion cubic meters compared to the reform scenario. In Asia, gas demand would be around 160 billion cubic meters lower in 2050 than in the reform scenario. And lower LNG availability would call on higher gas prices to satisfy import needs.
In all scenarios, the underlying energy demand rises, and "there is a significant need for new investments in oil and gas in all scenarios," Equinor reported. The main supply areas of gas remain the same: North America, Russia and the Middle East.
"Hardly anything has happened in terms of putting measures behind targets and actually trying to move us towards climate targets," Waerness said.
"The level of conflict has increased," he said. "We have sanctions against Russia, against Iran. Now we have increased protectionism between China and the United States, and other parts of the world, lowering our possibilities of technological change that would move us in the right direction, lowering economic growth … reducing the probability that global politicians together could act to solve [what] is one of our biggest collective problems that we've ever faced as human beings. And that's solving the climate change issue."