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Decarbonised gas key to Paris target — DNV GL report

Natural gas is expected to be the dominant fossil fuel and source of emissions by 2050, so industry, governments and research institutions must work together to accelerate CCS implementation

The world is set to overshoot its Paris Agreement emissions target, resulting in a 2.3°C rise in average temperatures by 2100 even if all planned measures and strategies are implemented, according to the annual Energy Transition Outlook by risk management and quality assurance advisor DNV GL, to be launched tomorrow morning.

The predicted elevation of natural gas over the next decades to a leading position in the energy system—helpfully displacing far more carbon-intensive coal—means that the transition fossil fuel will become the largest contributor of CO2 emissions (see Fig. 1). Under announced strategies, globally just 13pc of gas consumption will be in decarbonised by 2050.

“It is now time for the industry to start decarbonising gas,” Liv Hovem, CEO of oil & gas at DNV GL, says to Petroleum Economist. “That is the most important [factor] because gas will be the single most important energy source towards 2050.”

“It is now time for the industry to start decarbonising gas” Hovem, DNV GL

While the report highlights progress in reducing emissions in many areas, the biggest contributing factor in 2020 has been the economic fallout from the coronavirus pandemic. “Energy demand is down by 8pc this year,” says Hovem. “Although energy demand will pick up again, it will do so from a lower base.”

Global energy demand will be c.6-8pc lower over the next decades than the levels DNV GL predicted last year, due to behavioural shifts such as remote working and curtailed long-distance travel. “CO2 emissions have probably peaked due to Covid-19, but in order to meet the Paris Agreement we need a similar decline to this year every year from now on,” she says. “Covid-19 has just given us one to two years more to tackle the problem.”

On its current trajectory, the world’s ‘carbon budget’ for all emitting sources to limit the global rise to 1.5°C will be exceeded by 2028. Likewise, the budget to limit the rise to 2°C will be exceeded by 2051—when CO2 emissions will still continue at approximately half the 2020 level (see Fig. 3). 

Net-zero targets

The report factors in the slew of net-zero commitments made by IOCs since last year’s edition. However, as improvements in the oil and gas sector mainly relate to production, so-called scope one and two emissions, “in our projection they amount to about 32pc reduction of the sector’s emissions,” she says, mainly through reducing methane emission during production, aided by electrification.

“For the industry to decarbonise, we also need to look at full scope, including consumption. That is where we see the big lag in action, in decarbonising the fossil fuels that will remain in the energy system up until [at least] 2050.”

DNV GL suggests that we have passed peak oil and consumption will be in steady decline (see Fig. 2), mainly due to electrification of the transport sector.

The expectation that just 13pc of gas globally will be decarbonised by 2050 appears low given the number of strategies announced this year, most notably by the EU and Germany but also at state level in the US. But it represents a positive change; this global expectation has been revised up marginally this year, and the report predicts that 50-70pc of gas consumed in Europe will be decarbonised.

“Even the EU is not quite doing enough,” says Hovem. “We can we can see the contours of an energy system where 50-70pc of the gas is decarbonised with the current measures and strategies in place. But the goal is 80pc, so they are still not sufficient. But it is in reach, I would say.”

She adds that if industry and governments work together “it is possible to decarbonise gas in the energy system more quickly”, with greater uptake of carbon capture and storage (CCS) in particular.

While Europe benefits from advanced economies and suitable storage facilities such as depleted North Sea fields, the looming challenge comes in the future growth of gas consumption in China and India. The “main achievement” from India would be replacing coal with gas; it is far less likely to deploy CCS. 

 

Political change

As the report is “fundamental, based on the cost of energy and the cost of technology” it does not factor in possible outcomes of elections, however significant. This leaves room for rapid policy-led improvements.

While the climate policies of US President Donald Trump and Democrat challenger Joe Biden are wildly different, the election’s outcome is not factored into the model. “Policy, and how quickly things are ‘nudged’ to grow, will have an impact on the [emissions] results,” says Hovem. “But we [only] factor into the report policies that we know are being implemented—not geopolitics, elections or other similar things.”

In this context, Hovem believes it is still possible to hit the Paris target. “By 2050, CCS and hydrogen will have contributed to decarbonisation. But from our model CCS and hydrogen really do not come into play before 2040, which is late. Intensive policies that speed up this process will have a huge impact on what we manage to achieve by 2050.”

13pc – Proportion of natural gas to be decarbonised by 2050

The environmental impact of “most likely” overshooting to a 2.3°C change is not considered in the report but it would be “quite dramatic” says Hovem. “We have to continue the work and try to move as quickly as possible. Everything we can do reduce the overshoot is beneficial.”

With so many potential technological avenues, policymakers must select the most efficient methods of decarbonisation.  “The continued development of the renewable sector is extremely important, replacing coal with gas and then decarbonising gas as much as possible with CCS and transforming it into hydrogen,” according to Hovem. “And, of course, electrifying the whole system.”

It has become “more and more apparent that no one can do this alone” so Hovem advocates a partnership approach. “[Companies] need to find partners within the different sectors of the energy industry, as well as research institutes. Governments [should] create the value chains that provide the predictability for industry to invest. Finance, governments and industry all needs to work together.”

The best examples of such partnerships are found in Europe, she says, citing multiple German renewables projects, a UK pilot to heat homes with hydrogen and the Northern Lights project in Norway, where several majors are partnering with the cement industry to look at the disposal of CO2.

“It is these types of partnerships we need to see more of in order to progress,” she says. “It has to happen on all levels. It has to happen on the global level, on the EU level, the national level and even local level.”

It will also require drawing on the all the different types of emissions-mitigation technology—including all forms of hydrogen production.

Our view is that the perfect solution would, of course, be to go directly to green hydrogen,” says Hovem. “But that would take too long, considering the time we have left before we exceed the carbon budget. We need a huge component of blue hydrogen in order to reach the climate goals within the timeframe we have available.”

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