The role of gas in the energy transition

6 ways gas drives decarbonization

There are six ways that natural gas can help push forward sustainability and decarbonization. Each can occur over different time frames, with varying impacts (see chart). 

Coal substitution

Coal-to-gas substitution is the biggest near-term opportunity. Coal is responsible for 43% of global energy-related GHG emissions. China alone accounts for half of global steam coal used to generate power and in industrial processes worldwide. India and the US are the other biggest markets for coal generation, and many developing countries continue to add coal-fired capacity. Replacing older and less efficient coal plants with best-in-class natural gas generation should reduce emissions by more than 50% per unit of electricity.

The production of ammonia and methanol provides another opportunity to replace coal with natural gas. Ammonia is a key input in the production of many fertilizers and can also be co-fired with coal in power stations to reduce overall coal burn. Most of the ammonia and methanol produced comes from natural gas, but coal is also used, primarily in China. In the steel sector, metallurgical coal could be substituted by natural gas using direct reduced iron technology. 

Partnership with renewable power

Renewable power is critical to the energy transition, and variable sources such as wind and solar are expected to be the primary technologies. Because they are variable, they need support. Improvements in battery technology and demand-side management can go a long way to meet short-term fluctuations. However, thermal generation will most likely be required to help renewable power manage long-duration storage needs. Today’s planning horizon, which will determine energy infrastructure for the coming decade, contains few alternatives, and gas-fired power is the principal option. Every unit increase in renewable power is likely to be accompanied by some form of dispatchable generation. This support is sometimes called a backup to renewables, but that term can be misleading since the backup often provides more power than the primary source. 

Oil substitution

There is also scope for natural gas to replace oil. The main opportunity in stationary facilities is the 1.6 million barrels per day of oil used to generate power in the Middle East. Another critical area is the rollout of electric vehicles. Although the vision is to power EVs with low-carbon sources of generation, in practice, natural gas will be needed at least at the margin as electricity demand booms. Using gas-fired power to help meet power demand from EVs is a form of oil-to-gas substitution. Moreover, an electric motor is typically more energy efficient than an internal combustion engine. Natural gas could also have an important role to play in medium- or heavy-duty vehicles and shipping, either in the form of compressed natural gas or as methanol or ammonia.

Carbon capture, utilization and storage

Carbon capture, utilization and storage (CCUS) is a long-standing, proven technology with the potential to remove 90%-95% of emissions if properly operated. Its application to date has been mainly in oil and gas production, linked to enhanced oil recovery or gas processing associated with LNG facilities. In future, CCUS will need to be deployed at a much greater scale downstream in industrial clusters or hubs. The principal applications of CCUS will be in “hard-to-decarbonize” factories, such as those processing steel, cement, glass and fertilizer. These sectors typically use natural gas. 

S&P Global Commodity Insights projects that carbon capture will increase to 1.5 gigatons-6 gigatons per year by 2050, over 30 times higher than used today. 

Hydrogen

Hydrogen — or one of its derivatives, such as ammonia — is now widely recognized as a key component of decarbonization. More than 20 countries have declared hydrogen strategies. Some net-zero projections show hydrogen accounting for as much as 25% of energy end-use by 2050. So-called green hydrogen generated from renewable power via electrolysis will also feature. Given limitations in developing sufficient renewable capacity to meet both strongly growing direct power demand and a new appetite for hydrogen, blue hydrogen produced using natural gas is expected to play a significant role.

Clean air

Sustainability is about more than GHG emissions. Air quality is a major health hazard, especially with growing levels of urbanization across the developing world. Natural gas has a strong card to play here. Its low levels of nitrogen oxides, sulfur oxides and particulates mean that wider gas use can help reduce pollution levels. The running of municipal buses, delivery vans and possibly taxis could improve air quality. 

Potential spoilers

While gas can help support decarbonization, two potential spoilers must be addressed to ensure its benefits are reaped.

Methane leakage

The first is methane leakage. Methane is a potent GHG emission. Although natural gas has a relatively low carbon footprint, this advantage could potentially be offset by high levels of associated methane slip, which may occur in production or delivery of the fuel. Approximately 10% to 12% of global anthropogenic methane emissions come from natural gas use. However, the promising news is that methane leakage is a problem with a solution. Technology is evolving fast in the areas of detection, measurement and mitigation, and lasers, drones and satellites are all part of the armory. The oil and gas industry is confident that it can harness these technologies, and a wide group of leading companies at COP28 endorsed a commitment to achieving near-zero methane emissions by 2030. Methane leakage has a disproportionately deleterious short-term impact compared with CO2, so reducing that leakage will have a magnified positive impact on near-term global warming. It will be critical for the natural gas industry not only to deliver on that commitment but also to demonstrate it at each stage of the supply chain. Risk and prevention protocols around methane leakage need to be analogous to those focused on preventing oil spills.

Infrastructure “lock-in”

The second issue to address is the risk of infrastructure “lock-in.” This is the idea that investments today may enable emissions reductions from a base point but that these investments lock in a fixed level of emissions far into the future without options to reduce them further. The problem is that most natural gas investments have long asset lives. Pipelines that begin construction in 2024 can remain in operation beyond 2050, and liquefaction and regasification facilities operate for at least 25 years, often much longer. Switching from coal to gas offers an immediate but one-off cut in emissions, not a linear decline toward net-zero. The one-off emissions cut does, however, prevent CO2 from getting trapped in the atmosphere; for every unit of CO2 saved, hundreds of years of locked-in global warming effects are prevented (see chart).