Renewables and Natural Gas Big Winners Through 2040

SDG climate change

by | Nov 23, 2016

SDG climate changeWith a new presidential administration about to be sworn in next January, it is assumed that the United States will pursue more of its own fossil fuels and shy away from global climate commitments. But will that be truly impactful on which direction other countries go and will it prolong the life of coal?

According to the International Energy Agency’s 2016 World Energy Outlook, the big winners through 2040 are natural gas and renewables. Meanwhile, both coal and oil will get scaled back.

As the world community puts more emphasis on reducing carbon emissions tied to global warming, national governments generally will enact policies that favor low-carbon fuels such as renewables. And because natural gas supplies will only get amplified and because that fuel is lower in carbon than coal, its stock also goes up — especially because the fuel can be supercooled and shipped to foreign destinations in the form of liquefied natural gas, or LNG.

At the same time, the electrification of the transport sector will only get more intense, lessening the need for endless oil supplies. That’s one reason why big oil companies are diversifying their holdings and investing a lot more in natural gas and alternative fuels, including burgeoning technologies such as energy storage, like ExxonMobil and Total.

“We see clear winners for the next 25 years – natural gas but especially wind and solar – replacing the champion of the previous 25 years, coal,” said Fatih Birol, executive director of the International Energy Agency. “But there is no single story about the future of global energy: in practice, government policies will determine where we go from here.”

According to the World Energy Outlook, coal consumption barely grows in the next 25 years, as demand in China starts to fall back thanks to efforts to fight air pollution and diversify the fuel mix. (China’s share of the coal-fired electricity may fall from 75% today to 49% during that time but its need for coal will continue to grow as the country’s economy expands.)

The natural gas market, meanwhile, is also evolving. LNG, which is processed domestically before being shipped in tankers to oversea’s markets, will overtake pipelines as the moving force behind the natural gas market, the report says. The aim is to meet global energy demand, which increases by 30% in 2040.

Just this past year, LNG trade hit $120 billion, making it the second largest commodity exchanged on world markets, according to a Bloomberg report. Countries ranging from the United States and Canada to Russia, Qatar and Australia will supply LNG and especially to Europe and Asia, where China is expected to be the world’s biggest customer. 

“A 1.5% annual rate of growth in natural gas demand to 2040 is healthy compared with the other fossil fuels, but markets, business models and pricing arrangements are all in flux,” says the World Energy Outlook, released last week. “A more flexible global market, linked by a doubling of trade in liquefied natural gas, supports an expanded role for gas in the global mix.”

The ultimate goal of climate negotiators — the Paris accord went into effect this month — is to limit the rise in average global temperatures to 2.7°C by 2100. The path to 2°C is tough, but it can be achieved if policies to accelerate further low carbon technologies and energy efficiency are put in place across all sectors, says the World Energy Outlook.

It would require that carbon emissions peak in the next few years and that the global economy becomes carbon neutral by the end of the century, the report adds.

“Renewables make very large strides in coming decades but their gains remain largely confined to electricity generation,” said Dr Birol. “The next frontier for the renewable story is to expand their use in the industrial, building and transportation sectors where enormous potential for growth exists.”

That’s why several countries from low-lying areas and most at risk from climate change are vowing to run their economies entirely on renewable generation as soon as they can. The Climate Vulnerable Forum, made up of 48 countries, wants to keep global temperatures from increasing more than 1.5 degrees Celsius this century.

Because those low-lying countries are not wealthy, they would need financial assistance from those that are — something that has always been a sticking point in climate talks but not something that is insurmountable. Nevertheless, coal for many of them still represents the path of least resistance, given its abundance and cost. However, others say that distributed, or onsite, generation that relies on renewables is a way to overcome that. 

“Today’s commitment by the member countries of the Climate Vulnerable Forum to move toward powering their economies entirely with renewable energy is a bold vision that sets the pace for the world’s efforts to implement the Paris Agreement and move even more quickly to solve the climate crisis,” said former U.S. Vice President Al Gore, in a statement.

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