Natural Gas Industry

Natural gas is a major energy source of modern society used in power plants (40%), industries (35%), residential and commercial buildings (21%) and as feedstock for petrochemicals (4%). Today, production is relatively concentrated, with the US, Russia, Iran and Qatar producing over 50% of the global supply. The natural gas industry relies on highly energy intensive processes to extract, process and deliver gas to customers –nearly all the energy used is fossil fuel-based. The combustion of gas (scope 3) releases four times more emissions than its production (scope 1 and 2).

Including scope 3, natural gas is responsible for 20% of all man-made GHG emissions. However, only a fifth (4% of total) is directly emitted by the industry –65% in the form of methane. 45% of methane emissions are involuntary (fugitive), and 55% are part of operational processes (vented). In the business-as-usual scenario, gas demand is projected to rise by 30% by 2050, with developing countries in Africa, the Middle East and Asia-Pacific seeing a sharp increase while Europe and the US remain stable. However, aligning with theIEA Net Zero by 2050 requires a decrease in natural gas consumption by 55% by 2050, with the sharpest drops in North America (-55%), Europe (-96%) and Asia-Pacific (-71%).

Scope 3 emissions aside, the gas industry needs to address four sources of emissions:fugitive and vented methane, energy used in extraction, energy used in gas processing and energy used in liquified natural gas (LNG) processes. Technologies exist to reduce 70% of methane emissions at no or minimal cost to the industry, considering the monetization of captured methane. Extraction, gas processing and LNG processes can be electrified with low-carbon power, and CCUS is also well-placed to provide an alternative solution for gas processing emissions. Overall, known technologies can reduce gas industry scope1 and 2 emissions by upto 80% for a production cost 7% higher.

The natural gas sector directly generates 4% of all man-made emissions -65% in methane emissions.

Besides investing in production assets, such technologies will require more than $100 billion of infrastructure investments in low-emission power generation and carbon transport and storage, assuming the production level aligns with IEA Net Zero by 2050 Scenario (more if demand is higher) –such an amount is relatively small compared to the more than $300 billion spent in the upstream oil and gas industry every year. Low scope 1 and 2 emission natural gas could reach the market with a green premium of about 7%. To incentivize investments, demand signals for low-emission gas are critical. There are encouraging signs as the green premium for end consumers is expected to range from 1-3%, a relatively small impact that most end consumers could easily absorb. However, governments will need to prevent poorer households from being hit by rising costs.

Policy measures and international cooperation on methane fees, carbon pricing, emission standards, methane measurement and tracking regulations can help create a differentiated and economically viable market for first movers into the low-emission gas industry. Investments to decarbonize the gas industry are estimated at $110 billion on top of business-as-usual investments, i.e. approximately $4 billion per year until 2050, which is also small compared to the annual oil and gas industry CapEx. The business case to invest in low-emission assets is increasingly attractive; however, stronger demand and policy incentives are required to accelerate investments.

Notes: 1 Reduced emission production is defined as below 8.1 tCO₂e/MMcf emission intensity threshold in 2030 aligned with IEA Net Zero by 2050; 2 Low-emission production is defined as below 2.6 tCO₂e/MMcf emission intensity threshold in 2050 based on best available technology today; 3 Methane emissions converted to CO₂e using a global warming potential over 100 years (GWP100) of 34; 4 Energy used for the production of both oil and gas (scope 1 and 2); 5 Categories defined as per scope 3 accounting and reporting standard by GHG protocol; Estimates based on declarations by international oil major.

We emphasize five priorities for the sector:

1. Deploy existing technologies at scale to drastically cut vented and fugitive methane emissions.

2. Boost the number of low-emission projects to continue to accelerate the learning curve and drive costs down.

3. Develop the renewable power capacity and CO₂ transport and storage infrastructure required to enable electrification and CCUS for low-emission production.

4. Multiply demand signals for low-emission gas to incentivize producers and investors to direct capital towards low-emission production assets.

5. Develop policies to support the four priorities above and strengthen the business case for low-emission gas production