Wasted natural gas may hold the secret to solving the energy crisis
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Welcome back to Energy Source.
On Tuesday, I asked ES readers to weigh in on the big fusion breakthrough in a poll asking if we would have fusion power plants up and running by 2050.
The results are in . . . More than 500 votes were logged (thanks, y’all!) and 55 per cent answered yes, we will have fusion power plants by 2050. I have to admit, I was in the minority “no” camp. Fusion’s appeal as a clean power source is undeniable. It’s a technology that should — and is — being invested in and I think at some point in the future it will play a central role in our energy system. But to me the road to commercial reality still looks treacherous, and will only get more difficult as the industry tries to make the jump from the research lab to the market.
Kim Budil, director of the Lawrence Livermore National Laboratory in California, where the fusion breakthrough took place, said she thought “a few decades of research on the underlying technologies could put us in a position to build a power plant”. Budil’s remarks came at yesterday’s Department of Energy press conference, where energy secretary Jennifer Granholm touted the Biden administration’s ambitions for a fusion power plant in the next decade.
A little closer to the here and now, the UK and Europe are facing the first big energy test of a perilous winter as cold temperatures took hold this week. Electricity prices have increased in some areas, but so far there have been no signs of shortages. Crucially, the European gas-buying binge and conservation effort look to be paying off — inventories are sitting at around 87 per cent of capacity, a healthy level for this time of year.
In today’s newsletter, I look at a new report on how much natural gas the energy industry is wasting through flaring, venting and other losses at a time of sky-high prices and feared shortages. And Amanda breaks down why the oil market is going to swing on China next year.
Thanks for reading. — Justin
Can capturing wasted gas solve the energy crisis?
The natural gas industry’s open dirty secret has long been the sheer amount of the fuel that energy companies waste through flaring, venting and leaky equipment. It’s a local pollution nightmare and a climate menace.
This year it’s also become an energy security problem after Russian president Vladimir Putin weaponised his country’s vast natural gas exports as part of his war in Ukraine, which has raised fears of shortages and sent prices soaring, fanning inflation and bringing economic pain to households around the world.
A new report from S&P Global, along with the Environmental Defense Fund, breaks some new ground on the issue by putting numbers to the problem — and a possible solution.
The report argues that the surging price of natural gas means companies can now profitably capture huge quantities of the wasted gas. More than 80bn cubic metres of natural gas currently being flared, vented or otherwise wasted — 60 per cent of the EU and UK’s prewar Russian imports — can be profitably captured and sold, S&P analysts say. Half of that could theoretically come in the next two to three years.
EDF’s Matt Watson points out that recovering the wasted gas would both cut emissions of methane, the powerful greenhouse gas, and avoid “a massive new infrastructure buildout that would undermine climate goals”. Climate activists have raised the alarm this year over the rush to build new natural gas supply and export equipment, which they argue will lock in emissions from the fuel for decades to come.
S&P’s analysis points to the US as the biggest single source of potential new supply, accounting for nearly a quarter of the total 80 bcm of total gas going to waste. Mexico, north Africa, Nigeria and China are other regions with plenty of gas pollution that could be captured and plugged into the energy system.
The study makes a compelling economic case for moving fast. S&P forecasts that Europe’s main benchmark price will remain above $20 per million British thermal units through the middle of the decade — twice the prewar forecast — so there’s potential money to be made by getting gas to the market quickly.
Governments around the world and the big international oil supermajors have all made commitments to cut their flaring and venting in the coming years as well.
Will the gas come? We’ll see. The theoretical economic case (to say nothing of the climate case) for not venting or flaring gas has long been compelling, yet the problem has only grown worse over time. That has been true everywhere from the Permian to Nigeria to central Asia. It’s not clear that has changed in recent months even as the global gas crisis has raged.
Oil markets next year will be all about China.
Loosening Covid-19 restrictions in the second-largest petroleum-consuming nation will help drive nearly half of global energy demand growth in 2023, according to S&P Global Commodity Insights.
S&P predicts Chinese energy demand will grow 3.3mn barrels of oil equivalent per day after virtually no growth in 2022. Imports of oil, liquefied natural gas and coal are expected to increase next year after large contractions.
“A resolution of the geopolitical conflict in Eastern Europe and a relaxation of China’s Zero-Covid Policy could provide some upside potential,” wrote Opec in its latest monthly report. Opec maintained its forecast that global oil demand will increase 2.25mn b/d next year, assuming China reopens successfully.
China’s strict lockdowns have been politically and economically costly for the country, sparking the largest protests in decades and reducing GDP by 4-5 per cent, according to Goldman Sachs.
Oil prices rallied on news of China’s loosening restrictions, but a bumpy road lies ahead for Beijing’s economy and oil markets.
China’s low Covid-19 immunity is expected to spark a wave of infections, curbing mobility and oil demand in the short term. Energy Aspects forecasts a small recovery in the first quarter of 2023, revising Chinese oil demand up by 0.26mn b/d, a 1 per cent increase year over year. Goldman does not expect China’s oil demand to recover to 2021 levels until May 2023.
A combination of Asia’s recovery, under-investment and EU sanctions on Russian imports is expected to keep oil markets tight in 2023. Bank of America and Goldman both predict Brent crude prices to rise to $100 a barrel by the end of next year.
Signs of greater mobility and higher oil demand are already appearing in Beijing. Tuniu Travel, a popular travel site, saw bookings increase 72 per cent week over week last week. Ctrip.com, another travel site, saw ticket searches for lunar new year jump to a three-year high, according to Energy Aspects.
“It looks like with a pathway of easing restrictions . . . and [even] maybe some reoccurrences from time to time of lockdowns in certain areas, we’re going to be seeing a lot more Chinese energy demand going forward,” said Dan Klein, head of energy pathways at S&P Commodity Insights. (Amanda Chu)
Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg.
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