The Influence of Gas

It was not that long ago that natural gas was a waste product of the oil industry and flared instead of utilised as an energy source. Interest in natural gas increased as its’ value as a fuel for power generation and heating was understood. Natural gas is now projected to become the number two fuel in the global energy mix after oil in many countries even though on a global level it still ranks number 3 to coal. Not only is it one of the few viable alternatives in the power generation sector to back up intermittent renewables for power generation, but also the use of natural gas in power generation reportedly generates fewer CO2 emissions compared to oil and coal.

A natural gas glut in the North American market caused by excess supply of shale gas is influencing regional and global gas prices. Therefore, interest in the use of natural gas as an oil substitute in transportation has increased considerably. Most notably in recent years, the price of gas has been indexed at lower levels and seems to be decreasingly tied to the price of oil. Natural gas is also substituting oil in the chemical sector, specifically ethane produced as a by-product in natural gas production for naphtha derived from oil. This is notably in the US where many chemical companies have relocated or announced relocations to sites close to shale gas plays or pipeline infrastructure. Countries in the Middle East increasingly are producing petrochemicals domestically in order to increase their revenues from hydrocarbon. Some Middle Eastern countries also plan to switch from the use of oil to natural gas for domestic power generation in order to optimise revenue and volume of oil exports.

A similar switch from coal to natural gas for power generation is happening at an accelerated pace. This is not due to any price advantage for natural gas, as coal is still a cheaper fuel source. Rather the move towards the use of natural gas is to meet carbon emission reduction targets, and because natural gas is a more flexible fuel. This switch has been more notable in the US and Europe to meet energy policy.

With the rapid growth seen in gas generation capacity and it’s low cost per KWh, low prices and increasing carbon taxation will probably mean a marked shift away from Coal to gas necessitating shutdown or conversion of older plants.

Natural gas is often touted as a future fuel to continue to replace coal in power generation projects and oil as a transportation fuel due to its favourable economics, in the case of oil, and lower carbon footprint.

The renewable energy sector often touts natural gas as a ‘bridge fuel’ to meet power and heating needs until they believe renewables will meet 100% of energy needs. In Europe the European Gas Advocacy Forum has outlined an energy transition scenario from 2010 to 2030 from coal to natural gas that meets the target to reduce greenhouse gas emissions by 80% by 2050.

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