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EIA: Natural Gas is Poised to be More Competitive Than Renewables in China

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  • Oct 19, 2020

The U.S. Energy Information Administration recently released its 2020 International Energy Outlook (IEO), delivering some very promising insights into the future of natural gas, driven in particular by demand in Asia.

As noted in the report, Asian markets, deprived from local natural gas resources, have a gargantuan need for the affordable and popular energy-source, in order to achieve country-based energy transition targets. Just last year, almost 70 percent of the total global LNG exports were shipped to Asia, with China becoming the largest natural gas importer in 2018.

Thus, Asia’s growing natural gas demand translates into promising expansion opportunities for U.S. natural gas producers.

Let’s take a closer look into a couple of the outlook’s findings:

Natural gas generation is insensitive to changes in renewable costs in China

The 2020 IEO modeled nine different cases for 2050, considering both natural gas and renewables under high- and low-cost scenarios, concluding that natural gas will play a key role in Asian markets’ energy matrixes.

In the case of China, natural gas is poised to become the dominant energy source regardless of other sources’ affordability and low generation costs. According to the EIA:

“Natural gas price is the main driver of changes in natural gas generation, and natural gas generation is relatively insensitive to changes in renewable costs. In the Comparative Reference case, natural gas generation gradually increases in the near term, before leveling off in 2040, with an annual growth rate of 4.9 percent from 2019 to 2050.”

In fact, natural gas is such an adversary that could deter renewables growth:

“In the low natural gas price cases, the annual growth of natural gas generation increases to a range of 7.2 percent to 8.1 percent during the same period. With natural gas generation more economically attractive in these cases, low natural gas prices suppress additional renewable generation, unless renewable costs are also low.”

Simply put, natural gas’s competitiveness overshadows other sources, including renewables, regardless of the cost scenarios.

China’s demand for natural gas is also anchored in a clean energy transition mandate

The 2020 IEO also acknowledges that China’s climate-oriented goals play a decisive role in the country’s growing natural gas demand. The Chinese government has decisively phased out traditional fuel sources and looked for cleaner energy sources to support its ever-dynamic economy. Thus, along with renewables, natural gas is poised to displace traditional sources for power generation.

However, the swiftness and effectiveness of China’s transition to cleaner sources will depend the continued affordability of natural gas:

“In the case with the lowest natural gas and renewables prices (for example, the Low Natural Gas Price with Low Renewable Cost case), coal generation decreases to its lowest 2050 level across all cases at 2,986 billion kilowatthours (kWh), 20 percent lower than Comparative Reference case levels (3,752 billion kWh).”

Again, another great growth opportunity for U.S. LNG markets that have capitalized on the Shale Revolution’s accomplishments and can now lead the way to help Asian countries to achieve their reduced emissions targets.

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