Is Natural Gas A Bridge Between Fossil Fuels & Renewables?
Zacks Investment Research | Sep 20, 2017 10:50PM ET
High carbon generating fossil fuels no longer attract investors as its demand has started to decline. People are looking for cleaner energy sources now. Usage of natural gas along with solar, wind and water power has increased manifold in the last 10 years and so have investments in them.
Why the Surge in Demand?
Carbon dioxide emissions from gas are much less than coal. Also, emission of nitrogen oxide and other health-harming particles is lower by more than 75%. Thus, it has become an important resource in the fight against air pollution and climate change.
Though nuclear energy is also a source of clean power, it has its limitations. The danger of exposure to the harmful radiation deters many. Also, the transition from oil to renewable sources will take a long time. This is where natural gas can act as a bridge. It is expected to become the most vital energy source by mid-2030. Many large cap companies who can afford the transition are already investing in gas and associated research and development projects. Liquid Natural Gas (LNG) supply is expected to increase by 50% in the 2014-2021 time period.
What Supports the Surge?
Natural gas supply has increased rapidly in the last few years across the world. It is cheaper than most of the other sources when it comes to power generation and easily available. The United States is the largest producer in the world at present. Huge supply from the country pushed LNG prices down globally.
To transform the supplied LNG into gas economically, floating storage and regasification units ("FSRU") have been built along the coastlines around the world, which are cheaper than building permanent onshore terminals. In the last decade, LNG importing countries nearly doubled to 35 due to FSRUs making gas imports affordable. While making a terminal would cost a country $500 million and also take four years, FSRUs can be put in place within 18 months. For example, France's integrated energy company Total S.A. (NYSE:TOT) is now building a FSRU and associated gas pipelines in Ivory Coast.
As far as gas consumption is concerned, it has grown rapidly across the world. Global gas consumption grew 63 billion cubic meters (bcm) in 2016. Gas consumption in the European Union, the Middle East and China has risen by 30 bcm, 19 bcm and 16 bcm, respectively, while Russia and Brazil witnessed a slight decline in consumption.
LNG Trade Scenario
Last year, a record volume of 258 metric tons (MT) of LNG were globally-traded, up 13.1 MT from 2015. The International Gas Union believes this record will be broken repeatedly in the next few years as more plants are scheduled to come online around the world.
Companies in Focus
European oil major, Royal Dutch Shell (LON:RDSa) plc Zacks Investment Research
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