Energy transition is a significant structural change in an energy system. Historically, these changes have been driven by the demand for and availability of different fuels. The energy transition is a pathway toward transformation of the global energy sector from high carbon fossil-based to low-carbon fuel. At its heart is the need to reduce energy-related CO2 emissions to limit climate change. Regulation and commitment to decarbonization has been mixed, but the energy transition will continue to increase in importance as investors prioritize environmental, social and governance (ESG) factors.
Natural gas, and especially LNG, is expected to play a critical role in energy transition over the next 20-30 years, including supplying energy to the fast growing markets in the Asia Pacific region. The increased use of natural gas has already contributed to the reduction in CO2 emissions and the improvement in local air quality in many countries around the world, and will continue to do so as it replaces coal in electricity generation and diesel as a transportation fuel. Natural gas is also a key complement to renewable power development because it can quickly compensate for decreases in solar or wind power supply and rapidly respond to increases in demand, thus serving as a critical backstop to insure the stable uninterrupted delivery of electricity. Finally, natural gas is also the key feedstock for “blue” hydrogen, a low-carbon method of producing hydrogen.
We believe there is a natural gas market opportunity to execute an integrated natural gas and LNG supply chain strategy because of a disconnect between natural gas upstream suppliers and downstream consumers, especially international power producers in fast growing Asia Pacific economies that are faced with an increase in demand for electricity, a decline in domestic natural gas production and government policies supporting the development of gasfired power generation to replace coal or oil fired plants. In addition, these economies are grappling with rising natural gas demand growth from industrial consumers as a result of fuel switching and rapid economic growth. Switching from coal to natural gas was the largest single contributor to global consumption growth in 2019, accounting for over 55 bcm of additional demand.