A hitch for green switch
THE global energy crunch will slow the shift away from coalfired generation, according to the International Energy Agency, which warned on Tuesday that high fossil fuel prices would not necessarily aid in a quicker shift to green energy.
The IEA released its annual medium-term forecasts for natural gas markets on Tuesday, saying the international backlash against Russia’s invasion of Ukraine – which has seen a scramble in Europe to sever its reliance on Russian gas and coal exports – had pushed up prices to the point of “fuel switching and demand destruction” in international gas markets.
“It also casts longer-term uncertainty on market prospects for natural gas, especially in developing markets where it was to play a central role in energy transitions,” the IEA report says.
But the IEA warned that tight gas markets, even combined with soaring coal prices, would not necessarily lead to a quicker shift to renewable energy across global markets.
“We now expect less than 2 per cent growth (or about 75 billion cubic metres) for the 2021 to 2024 period compared to the previous 5 per cent (or 210 bcm),” the IEA said.
“However, such a revision does not necessarily imply that gas consumption is on course to achieving its transition to net zero emissions.”
About 40 per cent of the lost gas market growth would come from the “slowdown in switching to gas from other fossil fuels, as high gas prices delay conversion plans and investment or limits access to gas supply for newly built or converted infrastructure”, according to the IEA.
“Additional energy transition policies would need to be implemented in the coming years to accelerate the decline in gas use among mature markets, to reduce the pressure on supply and prices, and to facilitate access to more price-sensitive emerging and developing economies,” the report says.
The IEA noted that China, Asia and the Middle East represented the strongest regions for growth in natural gas demand in the four years to 2025, except for Japan and Korea, which “lead the declining markets on falling gas use for power generation in both countries”.
Combined with Europe’s move to sever its dependence on Russian gas pipelines, that is likely to be a boon to Australian producers.
The IEA report notes that Russia’s gas industry is likely to face severe problems as investment and export bans take hold, with the pariah administration of President Vladimir Putin likely to find it difficult to re-route its exports to Australia’s traditional markets in Asia.
“Our analysis indicates that in a best-case scenario for Russia it would take at least a decade to ramp up its gas supplies to Asian markets to a level close to its 2021 exports to the European Union (155 bcm),” the IEA report says. “It would also necessitate the development of new gas export infrastructure and require significant capital investment at a time when Russia’s access to capital markets and energy technologies is restricted.”