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Days of Reckoning on the Future of ‘Natural’ Gas in Asia

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Days of Reckoning on the Future of ‘Natural’ Gas in Asia

The gas industry in Australia and across Asia needs to face the music being played by major economies and governments worldwide.

Days of Reckoning on the Future of ‘Natural’ Gas in Asia
Credit: Depositphotos

The oil and gas industry had a critical opportunity at this week’s Australian Energy Producers conference, held in Perth, to exchange ideas on how to meet the existential threat posed to their business by the energy transition. 

Instead, regional oil and gas powerhouse Woodside Energy’s CEO Meg O’Neill calling for “truth” and a “reset” in the climate debate shows how the gas industry remains wedded to the past.

The truth is that gas companies, far from resetting the debate, are still peddling inflated demand forecasts that fly in the face of current market trends in many of the leading economies around the world, not least in Asia.

Woodside now says liquified natural gas (LNG) demand will grow 53 percent over the next decade, citing forecasts by Wood Mackenzie. BP expects similar growth, while Shell predicts over 50 percent growth by 2040. With an enormous LNG investment wave underway, it’s safe to say the industry is pouring in capital for the long term.

Let’s set aside the fact that gas is a polluting fossil fuel and that meeting global climate goals requires the world to burn far less of it, not more. That alone would be a good enough reason to reject the gas companies’ forecasts out of hand. 

But expecting LNG demand to explode also defies today’s policy realities. The International Energy Agency’s (IEA) business-as-usual scenario, which projects forward the effects of current policy settings, forecasts LNG trade to grow “just” 28 percent by 2030, or about half as much as Woodside would have us believe.

If the IEA’s scenario plays out, the climate would warm by 2.4 degrees above pre-industrial levels this century, multiplying economic and climate risk to all businesses in the face of worsening climate disasters in Australia and worldwide.

Let’s translate this into plain English: the gas industry is betting its business on the idea that government policies will fail while the planet boils. That’s not only cynical, it’s also financially incredibly risky.

As much as the IEA forecasts reflect government policies, they also reflect market realities. Let’s focus on electricity generation, which accounts for about 40 percent of global gas use. 

Australia’s gas producers are genuinely threatened by the dizzying growth of solar power. The world installed over 500 gigawatts of solar energy in 2023, more than the amount of gas power added over the previous decade. That record is set to be broken in 2024, with BNEF forecasting another 520 GW. 

Gas companies will bleat about how gas can back up renewables when the wind doesn’t blow or the sun doesn’t shine. This is a terrible argument for demand growth. 

A typical baseload gas power plant might run about 60 percent of the year; the same figure for “backup” plants is at most one-third of that. Even if we accept the need for more backup gas power, pretending that it can underpin a massive gas expansion strategy – as Woodside does – is fanciful at best and dangerous at worst.

Another line from the industry playbook is that Asia’s rising gas demand means there’s a need for new LNG projects. This self-serving argument relies on the antiquated notion that emerging economies will follow the same path that today’s industrialized countries did, by gradually moving off coal to fossil gas before finally switching to renewables. 

The real-world experience of technological transitions shows this gas industry claim is a fallacy. Today’s emerging economies didn’t have to start with landline phones before moving to briefcase-sized cell phones and finally smartphones; they could skip straight to the end product. 

That’s why the IEA forecasts that India will build more renewables in the next five years than the EU did in the last five, despite having one-sixth of its GDP per capita. Catching up isn’t so hard when much of the difficult work of commercializing a technology is already done, a point that gas companies seem unable to grasp.

The same is true in fast-growing Vietnam, where solar went from producing virtually none of the country’s power in 2018 to over 10 percent three years later, according to data from Ember. It took Australia 15 years to make that same journey.

The gas industry in Australia and across Asia needs to face the music being played by major economies and governments worldwide. Resetting the energy debate must mean recognizing the science of climate change and the unstoppable force of renewable energy, rather than painting a distorted picture of the outlook for gas.