- LNG demand could peak in 2035
- 'No silver bullet to decarbonise the electricity sector'
A recent report from Wood Mackenzie, a consultancy, found demand for liquefied natural gas (LNG) could continue to build before the global export market peaks in the mid-2030s, after which it will trail off significantly. It found a potential positive link between the need for LNG production to continue while the world moves over to more renewable energy.
US exports would be supported by “continued growth in Permian associated gas and Haynesville production”, the report said, good news for unconventional producers in the US. Dulles Wang, Director, Americas gas and LNG Research for Wood Mackenzie noted that as the gas industry continues to "innovate and transform", low-carbon alternatives would help both "sustain natural gas demand and support emission reduction goals in North America”.
In other words, the more grid capacity is given over to renewables, the greater the need for substitute energy sources to cover the intermittent nature of wind and solar. As we have previously pointed out in these pages, first movers in the renewables transition, such as Germany and California, have been subject to this parallel dynamic.
In Germany’s case the challenge linked to substitute power sources has become even more acute because the country recently shut down its three remaining nuclear power plants, 12 years after Japan’s Fukushima disaster. Consequently, we could witness an extension in the lifespan of so-called “peaker plants”, essentially power facilities designed to balance the fluctuating power requirement in electricity networks. It is also telling that in 2022, European lawmakers approved a law designating gas and nuclear as sustainable energy sources.
Homegrown LNG suppliers such as Shell (SHEL) and BP (BP.) stand to benefit from sustained pricing support in this area, along with large US exporters such as Chevron (US:CVX) and ExxonMobil (US:XOM). It's worth remembering that the LNG market is global in nature. LNG prices are often linked to natural gas hub benchmarks, although liquefaction and shipping costs are also factored into the equation.
One potential technological solution to get around the issue of intermittency is the development of grid-scale battery storage. California is again at the forefront of this transitional technology, helped along by the auto industry’s push to build compact, cheaper, and energy-dense lithium-ion batteries. But there are also several “Big Battery” projects in various states of development in the UK, most prominently a 420-megawatt (MW) lithium-ion battery site at DP World London Gateway port on the Thames Estuary.
As you might imagine, there are several daunting technological hurdles, not least of which is the limited lifespan of lithium-ion batteries, which are the principal cost element linked to grid-scale storage. If replacements are required every two decades, as appears to be the case, then the batteries would hardly fall within the category of “sunk costs”. In short, they could be prohibitively expensive to operate unless input prices fall significantly over the long haul – unlikely given the projected supply-demand imbalance for transition metals.
A report from researchers at MIT and Argonne National Lab – The value of energy storage in decarbonizing the electricity sector – concluded that “there is no silver bullet to decarbonise the electricity sector”, further adding that “the marginal value of storage diminishes as more energy storage capacity is deployed”. Though the researchers believe the technology is worth pursuing, they also take the view that “storage is not a requisite if a diverse mix of flexible, low-carbon power sources is employed, including flexible nuclear power”.
Regardless of international treaties, it is conceivable that national governments could be forced to alter their transition timetables if technical and material hurdles slow the road towards decarbonisation. Public support for – or toleration of – the push towards net-zero emissions could diminish overnight if the lights start going out regularly.
The researchers’ preference for flexible nuclear power is understandable given its reliability, load-flexibility, and relative cost benefits. Rolls-Royce (RR.) has identified several potential sites in the UK for its initial roll-out of 470MW small modular reactors (SMRs), but competition is intensifying in this corner of the energy market, as foreign rivals such as GE Hitachi Nuclear Energy have also submitted SMR Design Assessment entry applications to the UK Department for Business, Energy and Industrial Strategy.
Rolls-Royce has previously stated that it is on track for 2030 delivery of its first SMR in the UK, but again that seems to be overly optimistic. Yet the SMR technology is arguably the most practical method of decarbonising our energy mix, although it is possible that timetables linked to all the transition technologies will need to be recalibrated.
