2oC pathway could cut upstream gas investments by 65%

A world on a 2^oC pathway could significantly reduce upstream gas investments by 65% through to 2040, according to Wood Mackenzie analysis.

The company’s base case outlook projects some 200bn boe of new gas resource developments needed to meet demand through to 2040. Major contributors include Qatar, with its additional LNG mega-trains; and the US, Russia and China. Also known as the ‘Big 4’, these countries combined currently account for almost half of global gas supply. The ‘Big 4’ is expected to meet 60% of global gas demand by 2040. 

Wood Mackenzie’s Asia-Pacific Vice President, Gavin Thompson, says: ‘We estimate almost $2tn of capital is needed to deliver this growth in supply. However, a 2^oC demand scenario dramatically alters this outlook, with future supply requiring a more modest, though still considerable, $700bn of new investment as global gas demand peaks earlier. Sustainable investment is booming and investor activism on carbon has gone mainstream as more fund managers embrace ESG screening. This increasing scrutiny of gas’ carbon intensity is shaping investment decisions on future supply.’ 

Although gas’ low carbon intensity on burning makes it the cleanest hydrocarbon, LNG ranks amongst the most emission-intensive resource themes across the upstream sector, notes Wood Mackenzie. Significant emissions are released through the combustion of gas to drive the liquefaction process and any CO₂ removed prior to entering the plant is often vented into the atmosphere. 

Senior Analyst David Low comments: ‘If we look at methane emissions, shale gas is immediately put under spotlight. With a carbon intensity at around 34 times that of CO₂, the release of methane, including intentional venting and unintentional fugitive emissions into the atmosphere, is of rising concern to investors. However, the variable quality of methane emissions reporting, particularly for fugitive emissions, makes reporting challenging.’ 

Thompson adds: ‘Reducing emissions is not about technology. Carbon, capture, use and storage (CCUS) is used extensively in the US in enhanced oil recovery (EOR). It is about carbon pricing. The industry is at a critical juncture. Investors are demanding project returns stay attractive at lower oil and gas prices just as companies are looking to address multiple challenges on carbon. The global gas industry needs to respond, and soon.’

Wood Mackenzie believes developers and investors need to consider three key areas in order to secure a cleaner and more competitive gas supply – investing in sustainability, increasing competitiveness, and embracing new sources of capital. 

Sustainability is becoming the mantra across the industry, with carbon mitigation and ESG (environmental, social and corporate governance) increasingly at the heart of decision making. Some sustainability investments include reduction in venting, leakage and fugitive emissions, use of renewables to power LNG facilities, carbon offsetting, CCUS technology for high CO₂ fields and liquefaction and partnering with end-users to reduce emissions. 

To raise competitiveness, future portfolios must be founded upon the best assets. Suppliers must continue to put pressure on costs, consider divestment and alternative ownership of assets, and develop innovative contracting and enhanced trading capabilities, says Wood Mackenzie. 

As gas markets evolve, so, too, will sources of capital. Non-traditional and more diverse investors and partners are creating opportunities for global gas players to push projects forward, while potentially also gaining access to growth markets. China, sovereign wealth funds and equity funding are some possible future sources of capital and ownership. 

Thompson concludes: ‘Gas has a bright future, critical to combating air pollution and transitioning the world to a net zero future. Addressing emissions and exposure to carbon is vital. The gas industry of the future must become synonymous with ESG.’